It's a good question, and a very important one.
I have a number of think pieces planned -- there is always a backlog -- and this topic is planned for the third installment of the integrated macro analysis series that has gotten underway. (Part II will be a previously promised focus on the blending of top down and bottom up disciplines.)
To give you a quick preview (as the full piece could be a while), my terminology in this area is H&V, for "horizontal and vertical exposure."
A typical opening position will have planned risk in the neighborhood of 25 to 100 basis points.
But this only reflects part of the equation, because one will typically have multiple positions when expressing thematic conviction, for ex. 200 basis points of planned risk as spread out over half a dozen oil service names, or 150 basis points as allocated among agriculture names.
"Horizontal exposure" refers to increasing or decreasing total exposure by adding new positions or removing existing ones.
"Vertical exposure" refers to leveraging or de-leveraging an existing position (adding shares, lightening up on shares, closing out completely, etc).
There are many artful advantages born out of effective H&V management that would take many pages to articulate.
Total portfolio management then becomes the act of viewing the entire portfolio as an integrated whole, adjusting horizontal and vertical exposure accordingly in real time as conditions change.
As for how to sit on positions, that is a comprehensive process too in which one is constantly considering the inputs of the Father (top down / macro), Son (bottom up / micro) and Holy Ghost (price action).
Then, on top of all the above, one adds conviction and equity curve overlays. Closer to the zero line, a high conviction play might warrant only 100 basis points of planned risk. If one is already up 20% for the year, however, there is much more room for an aggressive swing of the bat.
Combining all these considerations and inputs for elegant real time result thus becomes part science and part art form. There is enough mathematical rigor in the process to reward strict logic and discipline, but also enough intuitive flourish to make talent and flexibility a critical aspect of the equation.
