Concentrated Investing: Record Contrary Evidence and Potential Losses, Not Just Conviction
A concentrated investment record should include what would prove you wrong and the loss to total assets. Make the record specific enough to avoid mistaking familiarity for an information advantage.
Concentrated investing assigns large weights to a small number of investments, increasing the impact of one mistaken judgment on total assets. A decision record should include the source of expected returns, contrary evidence, the reasons for the position weight, and conditions for reducing it. Defining observable facts that would change your conviction matters more than recording how strongly you feel.
Separate familiarity with a company from analytical evidence
Using a product frequently or working in a related industry can help you understand a company, but it does not prove your valuation is correct. At the start of the record, separate facts confirmed through public information from your own estimates. Rather than repeating the company's explanation, describe how prices, sales volumes, and cost structures translate into earnings per share. The analysis must be based on public information, distinct from trading on material nonpublic information.
Record why the allocation makes sense compared with alternatives
Finding a good company does not by itself fully justify allocating a large share of total assets to it. Explain why you are taking additional risk compared with spreading the same money broadly or keeping it in cash. Calculate monetary losses under separate assumptions of a single company failure, an industry downturn, and a longer-than-expected wait. If your income is also tied to the same company or industry, consider risks outside the investment account as well.
Keep the original record from being rewritten afterward
Keep the initial judgment and later revisions under separate dates. When new information appears, record whether it supports the existing thesis, contradicts it, or leaves the conclusion unresolved. Do not treat a rising share price as proof that the analysis was correct or a falling price as automatic failure. An investment can be profitable because of a market rally even when its rationale was wrong. When increasing a position, record any new evidence and changes in the risk budget beyond saying the price is cheaper.
If the core case rests on one piece of evidence, consider in advance what happens if it becomes impossible to verify. For example, discontinuing disclosure of revenue by major customer does not prove the thesis wrong, but it weakens your ability to test it. Recording the level of information required to maintain a concentrated weight can prevent conviction from filling an information gap. Risks that cannot be verified are also conditions that affect position sizing.
Worked example
Hypothetical example: Allocating KRW 20 million of KRW 50 million in investment assets to one company gives it a 40% weight. If that stock falls 50% and everything else is unchanged, the account loses KRW 10 million, or 20%. Allocating only KRW 10 million to the same investment would produce an account loss of 10% from the same shock. Record why you are concentrating an additional KRW 10 million and whether that loss would change housing or repayment plans. Do not compare the two choices using one high expected-return figure alone.
What to check
- Have you separated public facts from your own estimates?
- Have you compared the additional risk with a diversified alternative?
- Have you recorded in advance the contrary evidence that would change the thesis?
- Have you kept the original record separate from records of position-weight changes?
Sources and primary materials
This is educational material about research methods. For an actual company decision, verify the filings and primary sources for the relevant period.