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Be Patient and Add to Your Winners

Simon Erickson discusses his approach to adding new money to his portfolio, determining what to buy, and when he's willing to sell.

March 22, 2021

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!

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