By the way I would be interested to hear from people like Craft and Deepstate, and other respected investors on the forum, hypothetically speaking over the past 5 years would your performance have been substantially better if you had evenly split your capital into your top 3 investments/ideas (top 3 by position size) and eliminated all other positions?
I wouldn't consider myself a respected investor, as I don't have the years of experience required to show a long-term annualised result. Nevertheless, I'll throw my 2cents in to add to the conversation.
One of my biggest mistakes happened to be one of my largest positions as well. So if split my capital evenly between the three, my record would be horrible.
The more I look at it, the more I find I can't deal (emotionally) with the volatility of a very concentrated portfolio. I have typically held about 8 companies, with position sizes varying from 5% to 18%, and some cash holding.
As an example of the emotional hit, my largest holding basically halved in price (it wasn't my largest holding when purchased. But it did increase by 100% in a year, then subsequently moved back to the purchase price).
All of this of course, relates to returns and volatility. To put it into perspective, my dollar weighted average return has dropped into the high teens, from what was roughly 30%. The problem with my metric of course, is that the first two years of running my portfolio had a capital amount of ~5-10% of current size... So recent gains/losses are overstated, and it should be framed using a time-weighted calculation. Using this, I get about 17% p.a. (as of last night)
Since looking at it in this light, I have decided to increase the number of companies, with an end goal of 12-15, although that may prove to be a little too rigid. I'd also like to be close to fully invested, provided I can find companies that meet the hurdle rate I set.
There would also be some availability bias in this, as I've underperformed a few indexes over the last 6 months. I'm sure if you asked me this question a year ago, my answer would have been slightly different. Not a good thing, and I need to ensure I enforce these rules, whatever the decision.