I would submit that, aside from somebody who got screwed by a full-service broker loading them up with flavor-of-the-week stocks, people who had that many stocks has a decent level of knowing how to assess stocks.

The comment is intended to go with the rest of the "system", which is just a specific implementation of an equal weight index. It's intended specifically for the situation that the person neither knows nor desires to know anything much about a particular stock. In that situation (but not other situations) I think 4% isn't an unreasonable cap on a single-stock portfolio allocation. When doing quant stuff, I used 2.5% as my usual largest target allocation.

For a person who has other stuff that was chosen judiciously, perhaps with large allocations, that's outside the scope of my humble suggestion. The trimming step is targeted at the things bought from within the strategy. Though it's probably also good for anything picked based on an Instagram post.

Incidentally, along the same reasoning, if 4% is a sensible cap for a know-nothing investor's single stock exposure, as I very strongly believe it to be, then SPY isn't a sensible pick for a one-ticker portfolio.

Jim