Tuesday, 16 March 2010

Taking Profit and Reducing Serious Loss

Taking profit

Profit should be realised from sales of stocks in the following situations:
(I) when the stock is obviously overpriced, or
(II) when the sale of the stock frees the capital to be reinvested into another stock with potentially better return.

  • Not taking profit in the above situations can harm your portfolio and compromise its returns. 
  • In other circumstances, let the winners run.

Underperforming stocks should also be sold early.
  • Hanging onto underperforming stocks is costly too. 
  • There is the opportunity cost that the capital can be better employed for higher return. 
  • Also, hanging onto these lack-lustre stocks reduces the overall return of your portfolio.

Reducing serious loss

When the fundamentals of a stock have deteriorated, sell to protect your portfolio. 

  • This decision should be make quickly based on the facts and situations, in order to keep your losses small.

How can you improve your investment returns in stocks?

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