One of the most well-known Wall Street maxims is “Bulls and bears make money and pigs get slaughtered”. It means if you are too greedy, you likely will lose money.
In markets that have been long lasting, those with winning positions often are lulled into thinking the gains will continue. The problem with this thinking is eventually, the gains stop and the market turn the other way. Sometimes, this happens so fast your emotions can’t keep up and your gains become losses by the time one summons the strength to take action.
In 2008, many people famously sold at the bottom locking in a loss. In other periods since when there were minor corrections, great numbers of investors sold locking in losses. So, the question is, what do you do?
The answer is be very open to selling your stock or fund or other asset when it is very profitable, and try and forget about how much higher it could go. No one ever went broke by taking profits, small or large, in their investment portfolio.
History is filled with investors who invest based on what others are doing, in todays world its meme stocks or crypto currency but next year it could be something new. Whatever your portfolio is comprised of, when you have a security that has tremendous gains, you should think seriously about selling it and locking in that terrific profit.
Many regulated investment vehicles, such as mutual funds are required to ensure that no singular holding makes up too large a percentage of the fund. The fund manager is required to sell off some of the holdings, despite his or her belief in future gains of the security. It harkens back to the “don’t have too many eggs in one basket” concept of a diversified portfolio.
This decision to sell big winners should be much easier if you have essentially speculated in something that is too new, like crypto or you are just following because of others, like a Meme stock. If on the other hand you have a well-reasoned portfolio that is doing very well across the board, consider employing sell stops so that you can enjoy the upside while helping protect the downside. Be mindful that even a sell stop order cannot guarantee to lock in a profit, especially in a fast-moving down market.
One of the smartest strategies to have, and in writing, is a sell strategy. Creating a sell strategy can be very emotional, especially when you are in the middle of a raging bull market. Hiring a financial advisor is a smart investment, in essence to help ensure your portfolio does what you want it to do long term. The good news is in today’s world, you can employ an advisor in many ways be it fully delegating, by the hour or by the project.
Taking a profit is always a good thing, and there are many resources to help you plan out how.
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