My strategy is almost always to start small and add over time.

I like to take a 1% – 2% stake in a new position and then buy more shares as I learn more about the company. Even if a stock price continues to rise, I buy more if I see the company doing well in the metrics that I consider to be important. As we’ve pointed out many times, it’s fundamentals — not valuation multiples — that drive long-term returns. I’ll typically add up to 8% of my total portfolio value to any one single position.

In my non-retirement taxable account, I tend to prioritize smaller, faster-growing companies that I believe will have the greatest capital gains during the next 5 to 7 years. I have 26 unique positions, though my largest allocations are companies with a market cap of under $10 billion. These are the companies that I see emerging as leaders from recent trends, but that still have enormous upside that hasn’t yet been recognized.

Once invested, I almost always let my winners run. I think of cutting back your performers just to stick to a subjective allocation strategy as self-inflicted punishment to your overall returns. My largest position right now is around 25% of the portfolio.

I’ll only sell if I believe things are going poorly for the company or if I need the money for another venture. Funding 7investing this past year was one such opportunity!

Already a 7investing member? Log in here.