You posed a question in a straw secondtake88 - and I can not reply to straws - so I'm doing it via a forum - which is usually the best place to initiate and get involved with discussions of this nature.  The 20% rule is a common one used by industry super funds with their "self managed" or "member direct" investment options.  That's where you can use an industry superannuation fund like AustralianSuper or CBUS to run your own SMSF, but with much lower costs than if you set up your own SMSF.  One of the rules they have is that you can never buy shares where that purchase will result in that position becoming equal to more than 20% of your current balance.  They make exceptions for some ETFs.  It's just about risk management and forces some sort of diversification, although it's certainly not the perfect solution because you could invest 20% in each of CBA, WBC, NAB, ANZ & BEN, and you would be a LONG way from diversified.  With companies (not ETFs), they also have to be in the S&P/ASX300 index.  If a company is subsequently dropped from the index, you can still hold that company, for as long as you like, but if you sell down or out, you can not buy back into that company or add more shares to an existing position unless they are first re-admitted to the ASX300 index once again.  Likewise, if a position becomes larger than 20% of your portfolio, you are not required to sell down, it's all good, however you can't add to the position, even if you have sold some.  The tests are applied on each attempted buy order, and they ignore all prior history. 

Here on Strawman.com, there is no index requirement, but there is the 20% rule, and it works exactly the same as it does with industry super funds.  Your suggestion might be fairer, but it would get messy.  I would imagine the rule is not going to change.  The reason it is there is just to stop people putting too many eggs in a single basket basically.  Whether the basket has grown bigger over time and you've offloaded a few eggs, doesn't really change anything, you would still be putting more than 20% of your current balance into a single company. 

I personally support the rule as it is currently applied.  I was annoyed by it at first a few years back with AustralianSuper and then with CBUS, but I now accept that it serves a useful purpose and I work with it.  I was pleased to see that Andrew had adopted the same rule here.