Definition
Portfolio Construction
The process of selecting and sizing investments to optimize risk-adjusted returns.
Portfolio construction involves determining which securities to own, in what proportions, and how positions relate to each other. Key considerations include position sizing, diversification, correlation, liquidity, and risk management. While primary research informs individual investment decisions, portfolio construction ensures that the aggregate portfolio reflects the investor's risk tolerance, return objectives, and conviction levels. High-conviction ideas from thorough primary research typically warrant larger position sizes, while diversification helps manage the risk of being wrong on any single thesis.