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Start Small, Be Patient, Stay Flexible

Steve Symington breaks down his flexible approach to portfolio allocation.

March 22, 2021

One of the most common questions we receive at 7investing is that of portfolio allocation. We do offer some perspective on the topic in this FAQ article. But it bears repeating that there’s no one-size-fits-all approach for deciding on portfolio allocation or how many stocks you should own; these are inherently personal decisions that should be based on your own investing goals, style, and risk tolerance.

So, personally – and in keeping with our guilding principles here at 7investing – my own approach portfolio allocation might best be summed up as “start small, be patient, stay flexible.”

On starting small

First, when I buy shares of a new business in my portfolio, I tend to do it in small increments – perhaps 0.5% to 1% of my total portfolio at a time, and often in thirds or quarters relative to the amount of money I want to dedicate to that stock in total.

As an aside, even if you only have a couple/few hundred dollars to spare for any given stock at one time, try not to fuss too much over the amount and whether it’s too small. Every little bit counts, and (as several of the multi-baggers on our scorecard have illustrated already) even modest initial purchases can turn into hefty sums of money when you invest for the long term. With the advent of $0 commissions and fractional share purchases at many brokerages, the amount of your buys and the share prices of your companies are of little consequence today.

On being patient

On that note, I make it a habit to add my initial positions repeatedly over time, both as my own cash flow allows and as (in my view) buying opportunities present themselves. And I’m in no hurry to do so; there are individual stocks in my portfolio with positions that I’ve steadily built over the course of multiple months, quarters, and even years.

Often this means adding to my winners as their growth stories play out and evolve. Or, as you may have noticed if you’ve subscribed to 7investing for any extended period of time, it might mean taking advantage of unmerited pullbacks. After all, stocks don’t always go straight up right after we recommend them. If you’re truly investing in great businesses with a long-term mindset, you’ll know volatility (both up and down) is par for the course and any drops along the way should be celebrated:

On staying flexible

Finally, I strive to stay flexible when it comes to specific allocations. I don’t set upper limits for position sizes and certainly don’t mind letting my winners run higher – even if it means an individual stock might briefly comprise a very large slice of my total portfolio (which is generally made up of 30 to 40 stocks, with the number increasing in recent months as I find new 7investing recommendations compelling). If any given company comprises more than 20% of my portfolio at one time, I might revisit that stock to determine if it may be worth trimming the position to put some proceeds to work in a different promising name. But I don’t set hard-and-fast rules when it comes to allocation or the maximum number of stocks in my portfolio, so there are no guarantees that I’ll be willing to sell that position in favor of another.

To that end, as I work to identify what I believe to be the market’s most promising stocks in any given month while consistently adding new cash to my portfolio, I’ve grown fond of watching my smaller, younger positions inevitably pull their weight and grow into larger positions in their own right as my thesis unfolds.

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