The Mental Strategies of Top Traders: The Psychological Determinants of Trading Success

4.10. IDEA VELOCITY

Each position should have the work behind it that merits inclusion in the portfolio at a "minimum" position size. What is that minimum standard of work? It's embodied in the idea template. You should be able to articulate what's been driving the stock, your variant view for the situation, how that translates into your view on earnings and valuation compared to the implicit or consensus view, the event path that gets you there, and how much you are willing to risk. In particular, the focus on event paths is what separates the good idea generators from the great.

You could use baskets for hedging, but even there I believe that idea generation is where you create the value. Minimize the number of decisions (time) you need to spend on the hedging. Also, the positions that don't have enough liquidity to get bigger are probably not worth your time. You want to prove that you can effectively express your ideas via cash positions. Time-weighted return on your ideas is the key!