Taking Profits

Celticheart Investor

A beginner's guide to trading and investing

Now this is going to sound obvious but until you actually realise your profits it is pretty much academic how well your investments are doing. You would think that this would have a significant effect on how people manage their profits but frequently it doesn't.

How many times have you heard this statement, spoken with regret:
"If only I had sold when it was at its height"?

Look at how many potential "Dot com" millionaires saw massive paper profits only to see them evaporate before their eyes. The problem comes down to one thing and one thing only, greed. The reluctance to sell a single share when the price is rising for fear of missing out on that "multi-bagger" (a common term for when an equity realises multiples of the original buy price).

We all have to work out our individual strategies but my advice would be to lock in some profits on the way up, that way if the price does retrace you can always buy back in at a lower price. The other benefit is that if your profits allow you to you can sell enough to cover your original investment leaving you with what is in effect a "free carry" for the balance.

This method of profit taking is often referred to as "top slicing", which simply means taking profits off the top of your holding, de-risking your investment as you go.

There is always the danger that the company will do so well you will look back with regret at the percentage you sold thinking you could have made even more money, but that is what investing is all about, taking profits when you can.

There is always going to be the risk of getting the timing wrong, sometimes we will sell prematurely and sometimes we will delay selling until the price has peaked and retraced. Only you can decide when is the right time to bank those profits, you just have to learn to live with those decisions. On balance they will protect your investment and you will probably sleep better.

There is also the danger of getting too emotionally involved with your holding feeling that by selling you are somehow showing loss of faith in that company.
That sounds strange I know but I have seen it happen and even felt myself being drawn into that situation as well.

Recently a CEO of a company I invest in was criticised becase he dare suggest that investors in his company would have been wise to bank some profits along the way. He was not suggesting that shareholders should sell out simply that they should reap the benefits of a volatile market. It was, in my opinion, one of the most honest things I have ever heard a CEO say but it was met with derision by the very people he was trying to advise.

Investing is a business and like all businesses it is ultimately about profit so take a long hard look at your holdings and ask yourself should you be banking some profits or simply holding on in the knowledge that, on paper at least, you are doing very well indeed.

Next time:  A glossary of terms

A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.

 

Charting, an overview

Celticheart Investor

A beginner's guide to trading and investing

I think it is worth clarifying at this point that it was not my intention to focus so heavily on technical analysis but as with all things once you follow a path it sometimes leads you in an unexpected direction.

So, before I continue on that journey which is as much a learning curve for me as my readers I would like to take this opportunity to look at things from a much wider perspective. There is nothing more damaging in my opinion than to become so blinkered by charts and graphs that you lose sight of the basic reasons that made you buy into the company in the first place.

What people often fail to see with charts is they are not some kind of oracle that can predict the future but are simply a way of allowing us to identify probable changes in trends and patterns earlier than we could otherwise do so. They are not infallible but if you combine them with the fundamentals and facts that you are already aware of they are a useful tool.

There is a huge difference in charting as used by short term traders to identify possible spikes and retracements and using charts simply as a means of monitoring market sentiment. I am not a trader, looking for short term profits but a mid to long term investor but I still use charting to monitor progress.
That is not to say I will not take opportunities to take profits or topslice (I will come back to that) along the way.

I will continue to look at other tools available for Technical Analysis because I believe the more you have at your disposal the more flexible you can be in your interpretation of share price movement.

Remember that a lot of the analysis tools we have been looking at are "lagging' in that they track movements that have already happened relying on those same repeating patterns to appear in the future to identify similar trend movements. They are not a prediction of the future and cannot see what is going to happen no matter what the most ardent chartists tell you.

The currency of chartists is probability not certainty, if it was the latter there would be no poor chartists around. Ultimately your best friend in investing is your own judgement and research. I cannot stress that enough, if there is one certainty it is that you cannot do enough research, not just into the company but to the political climate it functions in, global affairs and even the environment; something which future investors in oil plays north of the arctic circle are going to have to take very seriously indeed.

Next time I will get back to looking at more specific elements but I thought it worth taking the time out to look at the bigger picture, something we all lose sight of from time to time.


Next time:  Invest in people

A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.