NEW YORK ( TheStreet) -- In all my years as an investor I've never met anyone who knew the secret of buying stocks at the very bottom and selling at the top. In fact, knowing when to sell may be more challenging than knowing when to buy.
In my recent article about how the wealthy play the stock market I didn't have the space to discuss how they build positions. The top investors build positions in the companies they find are the most promising, and they don't over-diversify.
Now, you're going to say, "Well, we're not the wealthiest top investors and I can't afford to take big risks." To that I say, "Bravo, and good thinking!" Each investor is wise to decide his or her position sizing discipline.
Many financial educators today advocate not having more than 5% of your investment capital tied up in any one stock position. Generally speaking, I agree. If you decide to meet or exceed that 5% mark you can mitigate the risk by choosing a well-capitalized, well-managed company such as Cisco Systems (CSCO - Get Report).CSCO was one of the most actively traded stocks on Monday after the most recent quarterly earnings report. Looking at a one-year chart and two major metrics we can assess a big part of the CSCO success story. CSCO data by YCharts
When a company with a strong, visionary leader such as CEO John Chambers can pull off the kind of trailing 12-month (TTM) revenue per share growth and keep the return on invested capital steadily moving higher and higher, quarter after quarter, it's no wonder the stock price has done so well.
Since the May 7 intraday low of $20.29, shares skyrocketed almost 20% in 10 days and reached Friday's 52-week high of $24.25. So it makes sense for this sizzling-hot stock to cool down a bit before resuming its upside momentum. It also offers a chance for investors to add to or begin to build an appropriate position in CSCO. It is arguably one of the most shareholder-friendly tech stocks in the world. Between stock buybacks in the billions of dollars and a 68 cents-per-share dividend, CSCO is a stock that literally pays to own it.