Four checks
- Largest single position. Divide the value of your biggest holding by the total portfolio value.
- Top-five share. Add up the five largest weights. A high figure means returns depend on a few companies.
- Sector weights. Group holdings by sector. One sector at a large share can dominate your results in a bad year.
- Look-through exposure. A fund can hold the same companies as your single stocks. Look at the fund's top holdings and add the overlap to your own positions.
An example
Suppose a portfolio holds ten positions. The largest is 25 percent, the top five add to 70 percent, and two of the funds both hold the same three large companies as a stock you own directly. The portfolio looks diversified by name but is concentrated in practice. The four checks above make that visible.
Choosing a limit
There is no universal maximum. A common rule of thumb is to cap any single stock at around 5 to 10 percent of a portfolio, but your limit should reflect your goals, your time horizon and how much a single loss would change your plans. Write it down so you can check it later.
Monitoring it
Portfolio monitoring lets you write rules for maximum position weight, top-N concentration, sleeve and group limits. When a rule changes state, the brief shows which rule it was, so the check happens without a spreadsheet.