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Holding a minimum 15-25 (or 10-30) positions in companies (Fools invest in companies, not stocks) is indeed an a goal for new investors to strive towards over time. It is not, however, a strict guide, nor is how much Fools should invest in each position or how they apply the strategy of dollar-cost-averaging (DCA). In other words, like so many things in investing, it's really up to the individual Fool.

As noted, commission-free investing and fractional-share investing make it easier to apply the principles of DCA without a transactional penalty. And while it is a viable strategy to apply equal dollar amounts to each position for each round, that is not the only way.

Another option would be to weight more cash towards positions in which you have higher conviction for the company's long term (3-5 years or longer) earnings growth potential, even if that means skipping over positions in which you have less conviction.

In this scenario, it can help to maintain a Buy Watch List divided into multiple categories: First, there are the Must Haves, companies in which you have deep conviction and absolutely want in your portfolio. Second, there are the Strong Haves, companies in which you have strong conviction but wouldn't just totally die if, like, they weren't in your portfolio. The third category is the Nice Haves, companies in which you have positive conviction but aren't especially excited over. The last category is Never Haves, those companies you just flat out think are wrong for you.

The Buy Watch List is a way of categorizing your conviction, which is admittedly a qualitative measure rather than a quantitative measure. I might be quicker on the draw for my Must Haves and less quick on my Nice Haves and somewhere in between on my Strong Haves. It also helps you organize your thoughts, have a proactive strategy in place, and avoid emotional reactive impulses.

Another thing to consider is that DCA does not necessarily mean regularly monthly scheduled investments. If you do not have any companies in your highest conviction categories, then there should be no pressure to invest in a company in which you do not have sufficient convictions. You can save the cash until the next month.

When you have an existing Buy Watch List, you can also eschew scheduled investing rounds altogether and wait for the market to present discounted opportunities to invest in companies in which you are already interested. For me, it's not about the size of the drop but the depth of the conviction. If I really believe in a company, it probably won't take much to get me to add to my position, especially if I only bought a 1/3 position to start with (buying in thirds is a strategy where you open a position at one price, then add to it on a future dip and then bring the position up to full value on another future dip).

The idea is to be ready to launch an investment offensive when companies in which you are already interested in investing go on sale. If you have a cash reserve handy, you can add to your positions in the companies with which you have the highest conviction, or tapping your Buy Watch List. Having a cash reserve is not sexy, and some Fools think they have to put all their money to work. But the opportunity cost of not having a cash reserve can be bigger than the the benefits of being fully invested.

When the market presents an opportunity like this, you are all ready to go.

And I should also mention an unofficial rule many Fools follow is buying in thirds. Let's say you want to purchase about $2500 of a company. You could buy $1000 now, then another $750 on a future dip in price, again the final $750 down the road when the price is again at a discount. Market downturns can present golden opportunities for adding another third.

Possibly the most important message I could try to convey is to remove emotion from your investment equation. Decisions to buy or sell a position should be proactive, not reactive. This means your decisions are based on a researched watch list, specific news and opportunity, not in response to day-to-day movements of the market or explosive but not necessarily meaningful events affecting a company's future promise.

Who notes opportunistic investing is not about timing the market but being prepared when the market presents discount opportunities to invest...

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Disclaimer: This post is non-professional and should not be construed as direct, individual or accurate advice
Disassociation: The views and statements of this post are Fuskie's and are not intended to represent those of The Motley Fool or any other sane body
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