How much should you put in each stock? (Most investors never think about this)

Assalamu alaikum,

We’ve covered a lot of ground in the past few weeks.

The margin of safety. How to read an annual report. The 2008 lesson. Which financial number to trust — and which one can be manipulated.

This week I want to cover something that most investors never think about formally — even experienced ones.

Once you’ve found a good halal stock at a good price, how much of your capital do you actually put into it?

It sounds like a secondary question. It isn’t. Position sizing is one of the most important decisions in investing — and one of the least discussed.

Why This Decision Matters More Than You Think

Here’s a scenario.

Two investors both identify the same halal stock. Both do the analysis. Both conclude it’s a high-quality business, trading at a 25% discount to intrinsic value.

Investor A puts 5% of their portfolio in it. Investor B puts 30% of their portfolio in it.

The stock rises 40% over the next two years. Then, unexpectedly, the company loses a major contract and the stock drops 25%.

Investor A: pleasant outcome throughout. The gain and loss both have modest impact on the overall portfolio.

Investor B: a genuinely stressful experience. The 40% gain was exciting but created a false sense of security. The subsequent 25% drop is painful enough to affect decision-making — possibly triggering a sell at exactly the wrong moment.

Same stock. Same analysis. Completely different experience and outcome — because of one decision made before the first share was purchased.

Position sizing doesn’t just affect your returns. It affects your behaviour. And investor behaviour is often what determines whether a good investment actually produces good results.

The Two Failure Modes

Most investors make one of two position sizing mistakes.

Failure mode 1: Too concentrated

Putting too much into a single position amplifies both gains and losses. The mathematics of loss make this dangerous in a way that isn’t obvious.

If a position falls 50%, you need a 100% gain just to break even. A 30% loss requires a 43% gain to recover. The asymmetry of losses is brutal — and it gets more brutal the larger the position.

Concentration also creates a psychological problem. A large position that’s moving against you is much harder to think clearly about. The emotional weight of a significant loss clouds analysis. You start hoping rather than reasoning.

For halal investors with a smaller universe of investable stocks, concentration risk is amplified further. We’re already working with fewer positions than a conventional investor might hold — that makes each one more consequential.

Failure mode 2: Too diluted

The opposite error is spreading capital across so many positions that no single investment can meaningfully move the portfolio.

Some investors — particularly those who have heard that “diversification is free” — hold 40, 50, or 60 stocks. At that point, you’re essentially buying a self-constructed index fund. But unlike an actual index fund, you’re paying transaction costs and spending significant time on analysis for no additional return.

Warren Buffett once said that wide diversification is only required when investors don’t know what they’re doing. The comment was pointed, but the logic is sound: if you have high conviction on 12 stocks based on careful analysis, a 60-stock portfolio dilutes that conviction without adding proportionate safety.

For halal investors, over-diversification also creates a practical problem: the halal-screened universe is smaller than the full market. Spreading capital too thin in a reduced universe often means owning second and third-tier companies simply to fill positions — which undermines the quality focus that makes the approach work.

A Practical Framework

Here is how I think about position sizing. I don’t follow these as fixed rules, but they serve as a useful starting structure.

The core portfolio: 10–15 positions

This is where the majority of capital sits. These are the businesses I understand best, that have passed all five gates, and that I’m prepared to hold for years.

Within this core, I size positions based on two factors: conviction and margin of safety.

Higher conviction + larger margin of safety = larger position. Lower conviction + thinner margin of safety = smaller position.

In practice, this means a position I feel very confident about might receive 8–10% of the portfolio. A position where I’m less certain — perhaps a business in an industry I know less well, or one where the margin of safety is on the lower end of what I’d accept — might receive 3–5%.

The ceiling: rarely above 10% in a single position

A single position above 10% of the portfolio starts to create the concentration problems I described earlier. The mathematics of a significant loss in that position become punishing.

I break this rule occasionally — when conviction is extremely high, the business is genuinely exceptional, and the margin of safety is large. But “occasionally” means once or twice in a portfolio lifetime, not as a habit.

The floor: rarely below 2–3%

A position below 2% of the portfolio is so small that even a very good outcome barely moves the needle. It also suggests that conviction is low enough that the position probably shouldn’t be in the portfolio at all.

If a stock isn’t worth 3% of your capital, it’s worth asking: do you actually believe in it enough to own it?

Watch positions: 1–2% allocations

Sometimes I’ll establish a very small position — 1–2% — in a business I want to follow closely before committing more capital. This gives me skin in the game (which sharpens attention) without meaningful risk while I continue my analysis.

I only add to a watch position if subsequent analysis increases my conviction.

The Halal Portfolio Consideration

There is one aspect of position sizing that is specific to halal investors, and it connects back to something we covered in Edition #1.

Because our investable universe is smaller, the temptation is to hold fewer, larger positions — simply because there are fewer options. This is a logic error.

The right response to a smaller universe is not larger positions. It’s more selective analysis. Rather than owning 15 mediocre halal stocks at 6–7% each, own 10 excellent halal stocks at appropriate sizes.

Quality over quantity applies both to which stocks you hold and to how many positions you maintain.

A Note on Cash

Position sizing isn’t only about how much to put in each stock. It’s also about how much to hold in cash.

Many investors feel uncomfortable holding cash — it feels like wasted capital. But cash is a position. It’s a position in optionality: the ability to act when a genuinely good opportunity appears.

I always maintain some cash — typically 5–15% of the portfolio, depending on market conditions and how many high-quality halal stocks are trading at a meaningful discount to intrinsic value.

When opportunities are scarce, cash is patient. When opportunities appear, cash is ready.

This Week’s Action

Look at your current portfolio or watchlist.

For each position you own: what percentage of your total investment capital does it represent?

For each stock on your watchlist: if you were to buy it today, what percentage would you allocate, and why?

If you can’t answer the “why” for a position size — that’s worth thinking about before the next purchase.

Hit reply if you have questions. Position sizing is one of those topics where a concrete example often helps more than a general framework — and I’m happy to work through one if you have a specific situation.

Wa alaikum assalaam,

Rizal Founder, Barakah Profits Former proprietary trader | Ex-KPMG | Ex-Standard Chartered

P.S. Everything in this newsletter — margin of safety, financial statement analysis, the Barakah Check, position sizing — is taught in full depth in the Barakah Investing Blueprint. If you’re ready to go deeper than a weekly newsletter allows, you can preview free lessons at barakahprofits.com.