Rising Star Buys: More Tech and Health Care

This article is part of our Rising Star Portfolios series.

My Rising Stars portfolio is off to a great start with every position in the black, and a good level of diversification even though I have just five stocks so far. Today I'm announcing my intention to fill out full positions on three previous purchases.

At the beginning, I introduced the concept of buying partial positions, and I want to expound on that today.

The rule of thirds
Much like speed-dating relationships, you don't have to totally commit to a stock at the beginning. Fool co-founder Tom Gardner long ago introduced the concept of buying in thirds, especially for novice to intermediate investors.

Let's say a normal, "full position" for your stock portfolio is $5,000. You would spend about a third of that, or $1,667, in buying your initial position in a company. You can finish buying the other two-thirds at separate times if your conviction in the company increases, or the price goes on sale, etc. You can also choose not to add more if you become disappointed with the business.

One advantage of this idea is that it provides a lower-risk way to get into small, volatile, or risky companies via dollar-cost averaging. Another is that you're getting your toes wet by putting real money to work in a stock, which gives you extreme motivation to do more research and follow the company more closely.

I find it's an especially useful idea when buying great companies that are richly priced by traditional measures -- those fitting the classic Rule Breakers definition, for example.

Three for me
For the purposes of this Rising Stars portfolio, I consider a full position to be around $1,000, which is just under 6% of the $17,000 I'm getting for the first year. I decided to buy in halves instead of thirds, because I didn't want to go below $500 per purchase. Likewise, you should tailor your program to fit your own situation. Here's what the port looks like thus far:

I'm announcing three buys today -- half positions each in Johnson & Johnson, Abbott Labs, and II-VI. All have had new earnings reports since my original buys, and my investing thesis is still intact with each of them. The first two are large-cap health care blue chips, and we can pretty much expect steady going over the course of just a quarter or two. In boring news that we love to hear, J&J raised its quarterly dividend by 5.6%, while Abbott increased its payout by 9%. (If you own them, you should be reinvesting your dividends in these "corporate El Dorados." Here's why.)

II-VI, however, is a small-cap tech stock and can spike up or down significantly on any given day. Fortunately for us, investors were taken enough with its earnings report and revised upward guidance that we experienced a 23% moonshot last month.

Until next week
I'll enjoy the long Memorial Day weekend with the rest of you, and then next Tuesday, I'll make these three buys. Meanwhile, I'm continuing the search for my first international stock in order to achieve just the right amount of diversification. If you'd like to keep up, just give me a follow on that Twitter thing.