After having answered the first question on portfolio construction (read about it here), the next question that came to me was about the maximum percentage that a single stock should constitute in one's portfolio. Again, there is no "rule" which prevents you from having your 90% of your equity networth invested in one stock. But like the decision to diversify, here also, I personally comfortable to invest up to 25% in one stock. But that would be really rare. I have to be very very convinced of the story and the fact that my downside is limited for me to go to that extent.
I had in two occasions invested close to 25% in one stock. One was in Tata Motors at 100-110 levels. I sold it off around the 980-990 levels after it had failed to break the Rs 1000 barrier and I got frustrated holding on to it :-)
The second instance was Supreme Industries. I had invested around the 40-45 levels (split adjusted). The downside was limited by their real estate value of their Andheri complex. It has since moved to 200+ levels. Although, I have not yet sold my positions in Supreme, the portfolio weightage has reduced because I have added other stocks.
In general, I prefer to have somewhere close to 5%-10% invested in one stock. I typically increase or decrease the position based on market price and my conviction level.
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