Don’t be afraid to take profits!

by Pi-R-Squared

Just a friendly reminder! Ask any investor who’s been doing this long enough and they can tell you about a stock they hold onto too long. I know a common question is “How do I know when to take profits?” The honest answer is…there is no right answer, but there are many good answers!

Let me give you an example of some profit taking I just did recently with AMD:

I bought into AMD @ $10 with a price target of $30 and my time horizon was 3 years for it to hit that. Needless to say….it’s already done so and a whole lot faster than I anticipated. Today it was $32 and I went into evaluation mode.

– I asked myself these questions:

1) Do I still believe in the reasons why I purchased this company Answer: Yes

2) Do I still believe in their management? Answer: Absolutely!

3) Now that it has eclipsed my price target should I adjust my target upward? Answer: Yes.. by probably another 10 dollars

4) This is my big one… If AMD’s price fell by 50% tomorrow, am I going to buy more shares….or sell?

Answer: I hesitated…then answered neither.

It is because of my answer to #4 that I took some profits with AMD. I didn’t sell my entire position however! Remember, I went from $10 per share to $32 per share so I had 3x the money I started with. Today I sold half my shares that I owned in AMD locking in a guarantee of a total profit of 50% of my initial investment. The other 50% of my shares that I kept, I can comfortably raise my price target to $42 and know that even if AMD tanked tomorrow and ceased to exist as a company, I will still have made a profit. If they shoot to the moon (cough)! I will still make more money on the company.

So remember. Taking profits is ok! And don’t forget that taking profits doesn’t mean you have to sell out of your entire position. 🙂


Disclaimer: Consult your financial professional before making any investment decision.