Ask Colin

What do you thinkabout selling a third of my position when my stocks have risen by 50%?

The detailed question was:

I have read about a strategy on taking profits on fast trending stocks. The proposal is that when the profit gets to the 50% level, I sell 1/3 of my position therefore cashing in some profit and reducing my stake back to the starting value. This would also have the benefit of keeping my portfolio in balance. i.e. a 10% position that gets out to 15% is reduced back to 10%.

I have seen this approach and many others like it. I think it is fine for traders, but it does not really achieve what I want to do which is capture the big trend rather than just one upward swing. In my case it would be breaking the important rule of letting your profits run.

However, just as I find it helps psychologically to sell half if my investment  doubles, this will work well for a trader who finds it difficult to stay with fast-moving positions. The key though is to be sure of what you are trying to do. If you are trying to be an investor, it will be very corrosive to your plan. The danger is that the investor never learns to stick with the trend, but jumps out too quickly.

In summary, it could be a good idea for a trader, but I have some reservations for an investor.