Ask Colin

What do you do when a stock has gone up a great deal?

This was the detailed question:

I have encountered a number of situations, when I have scored a big gain, that I sell too early and the shares have continued to rise, some quite substancially. For example last month I sold a share that I bought at $15. It had been at this level for a few years. Last December it was $26 after a company bought a 20% shareholding. I sold last month at $44 as I had made a two baggger (and it loooked like a parabolic curve) and now it is $60. I know that I should always leave a little on the table for the next investor, but I dont want to leave too much. Would you please tell me what your would do about selling a share that has risen quite a lot.

 

You raise an interesting  issue which  is an important part of my investment plan – taking profit, but letting capital run, or taking capital out, but letting profit run, whichever way you want to express it. This is the principle of letting profits run (opposite of taking losses when they are small), a firm “law” of Wall Street. The problem, of course is psychological as discussed in my book Building Wealth in the Stock Market. My plan guideline is to sell half my holding every time the price doubles. Most recently, I did this with Ramsay Health Care, as discussed in the Stock Investment Journal on my members website.

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