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Hammond Power Solutions Inc. Class A Subordinate Voting Shares (HPS.A $267.31)
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Aritzia Inc. Subordinate Voting Shares (ATZ $139.63)
Q: I adhere to a portfolio construction strategy where 5% is a full position but I allow for a "rock star" stock like a SHOP, NVDA or GOOG, to go to 7% at which time I will trim a point or two.
When you suggest a small-cap stock, you often warn against buying too big a position initially, given the inherent instability and risk of a smaller company. My question is, at what point do you "loosen the reins" and allow that stock to assume a full position and when do you allow it to go to (in my case, for example) rock start status? I'm thinking of companies like ATZ and HPS.A. Is it based on capitalization, number of business cycles management has gone through, profitability ratios or is it as much art as science?
Appreciate your insight.
Paul F.
When you suggest a small-cap stock, you often warn against buying too big a position initially, given the inherent instability and risk of a smaller company. My question is, at what point do you "loosen the reins" and allow that stock to assume a full position and when do you allow it to go to (in my case, for example) rock start status? I'm thinking of companies like ATZ and HPS.A. Is it based on capitalization, number of business cycles management has gone through, profitability ratios or is it as much art as science?
Appreciate your insight.
Paul F.
5i Research Answer:
For smaller companies, we typically let it 'earn' its weighting. So, if it grows organically into a full position due to good results and execution, we will let the weight grow on its own. Similarly, if it is doing 'the right things' but shares are still not moving a whole lot, we might slowly add to it, bringing the allocation a bit higher, as they continue to show that they can execute even if it is not getting noticed by the markets.