Investing strategies taking profits challenges many investors. Best results come from letting winners run while selling losers to buy more winners.
Money strategies course, Lesson 7, covers the profit taking issue. Knowing when to take profits and when to let your winners run can challenge investors. Links at the lesson end guide you to related content to learn more.
What’s in this lesson for me?
You learn how successful investors think about profit and managing winning investments. That helps you become a better investor.
Should I take profits on a stock that is up?
“Should I take profits on a stock that is up?” asks a reader. This question often gets asked when a stock has had a nice gain. To many this is a hard question. Naturally we like to make money and making more may seem like a good idea. Let you winners continue to make gains.
Fearing when to take profits
Should I take profits, may seem very logical but often driven by the fear of not wanting to lose the gain. Many small investors find it very hard to stay with a winner. The higher it goes the more they want to sell. But that is how the big gains are made. Enjoy the ride!
Think like a wise merchant
Wise merchants want the most appealing products in inventory to attract customers. That will make the most money.
Items in the store that do not attract customers or sell get eliminated. They recognize poor inventory as missed opportunity. It ties up capital that makes nothing. Better to own more winning inventory.
The unwanted or dead inventory gets quickly unloaded by the wise merchant. They get out of the loser and buy more of the winning inventory that sells. The faster more winning inventory arrives, the better!
With more winning inventory the merchant makes more profit and grows their business faster. The continuous process of bringing in more good inventory as well as identifying and eliminating the poor or bad inventory is routine for sharp merchants.
We need to follow their example. To effectively manage our portfolio we need to pick winners and eliminate losers. Each time we realize a loser kills money, we must bring the money back to life by selling losers. Then take the capital raised and invest in more winning inventory.
You choose to be exceptional or be average you choose portfolio performance
Like many choices in life, you can choose to be exceptional or average. When it comes to portfolio performance you can do the same. Too many investors do the opposite. Incredibly they are driven to sell their winners. That behavior divides exceptional portfolio managers from average or poor managers. Ride winners, sell losers to show exceptional performance.
Choose to be exceptional. Have a portfolio performance that ranks with the winners. Avoid behaving like a manager that imposes upside limits by selling too early. Taking the quick and early profits can make you a loser.
Winning managers patiently ride their leaders higher. Take the long easy ride; once you have found a winner stay with it for the full ride.
As part of your regular portfolio review, have achieving your best possible portfolio performance in mind. Always sell losing stocks, always keep winners.
An old market saying sums it up, “trim the weeds, water the flowers” applies here. We want many flowers and no weeds in our portfolio.
Portion control
When a winner becomes an ever larger portion of your portfolio the urge to sell can seem irresistible. Setting portfolio parameters for yourself can help. See the lesson: Portfolio portions – How are your measurements?
Establish guidelines for the number of positions to hold as well as the portion of your portfolio to hold in each stock. You need limit guidelines as well. You need to ask yourself, How much growth or loss is acceptable to me? Answering that question will let you establish the necessary limits.
For myself I let the winners run. Even when they run past my guidelines. I ride until they run out of momentum and pause. Then I sell to bring them within my guideline. Waiting to sell can produce far greater profits. Try it.
Why this lesson matters
Choosing to take profits or ride gains are important investor decisions. Profitable gains often make investors feel fear. They fear losing the gain. Do what wise investors do. They let their winners run, sell the losers and buy more winners! This behavior separates losing investors from winners. Be a winner, let your profitable companies continue to add to your wealth.
Takeaways from lesson 7, Investing strategies taking profits, include:
Investing strategies taking profits challenges many investors. Best results come from letting winners run while selling losers to buy more winners.
- Become a better investor by knowing when to take profits.
- Let winners run when markets are rising.
- Don’t fall into the fear trap that makes you sell too soon.
- Think like the wise merchant the buys more winners.
- Sell your losers and buy more winners.
- Be exceptional – take the full ride with your winners.
- Trim the weeds, water the flowers.
- Take the lesson on portion control.
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Related: Investing strategies taking profits:
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Wealth Growing Money Strategies:
Introduction: Wealth Growing Money Strategies Lesson 1
Investors use many stock market strategies Lesson 2
8 Big money matters Lesson 3
Nelson Mandela touched investors Lesson 4
Market time grows money Lesson 5
Stock market dip opportunities Lesson 6
Investing strategies taking profits Lesson 7
5 Money making strategies Lesson 8
Investors can deposit and WAIT! Lesson 9
Change moves markets forward Lesson 10
ETF Revolution changes investing Lesson 11
Benjamin Graham market mix Lesson 12
Next lesson 8
Use 5 Money making investment strategies, income, value, growth trading and speculation to build wealth. Financial security and retirement comfort comes with investing success.
Have a prosperous investor day!
Bryan
White Top Investor
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Lesson code 410.07.
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