What To Do When Investments Turn Into Great Trades

John from California writes:

“I know you are a long term investor, but given that one of your 2008 Select List picks just went up 30% in a matter of days, I’m stuck as to what to do, sell or hold on? Any thoughts?”

John, thanks for the question. A common answer to this dilemma (feeling compelled to book gains even if your time horizon has not played out yet) is to sell a portion of the position. This gives you the best of both worlds by booking some profits but staying in the stock. Oftentimes I will sell half of a position if I’m really torn about what to do.

However, this works best with large gains (say 100%) because you accomplish both taking a lot off the table and maintaining a sizable position for meaningful further gains. With a 30% gain, however, selling half brings your overall position size down to about one-third less than the level it was less than a week ago, which could very well be too small for your taste.

In that case, I might consider selling 20%-25% rather than 50% in order to keep a full sized position for the long term. After all, the Select List is geared for intermediate to long term investors, even if gains over the first week for one of the picks was unusually high. Hope that helps.

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One Thought on “What To Do When Investments Turn Into Great Trades

  1. Wayne Mulligan on January 15, 2008 at 6:27 AM said:

    At the risk of sounding cliche, I still think it’s worth mentioning that nobody ever went broke taking a profit. If a stock in your portfolio is up 80% there’s no reason to feel guilty for taking all of your money off the table and putting more into a position that has yet to run (especially in this market).

    But there was some great advice here on how to take some of your principle off the table and let the profits work for you.

    Good luck.

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