Charlie Munger has said that one the most effective filters you can use to optimize the allocation of capital is to compare a prospective stock purchase to your best current holding. If it’s not as attractive, don’t buy it.
Instead, consider buying more of your best holding. This type of thinking will force you to move capital into optimal opportunities and will prevent the dillution of your efforts. Munger also points out that it is a powerful time saver. If your idea is not as good as your best holding, you can forgo wasting time doing any further research.
Another variant of this idea is to compare your idea to buying Coca-Cola. Coke is a great company: virtually unlimited growth prospects, Fort Knox balance sheet, unassailable franchise, low capital intensity, minimal regulatory and litigation risk, strong management, etc. Always remember that (most of the time) you could just buy Coke and your almost guaranteed of getting a good, if not spectacular, result. Run down your idea against Coke and honestly determine if it is worth it on a risk-adjusted basis. This may keep you from doing some dumb things with your precious capital.