If you want to preserve the wealth you've accumulated
by making sound investments, you have to know when and what to
sell. Being prepared to sell doesn't mean you're abandoning
a buy-and-hold strategy that may work well with certain investments,
or that you sell a stock just because it has increased in value.
That could mean missing out on continuing growth.
When the price is up
But selling when you have made a profit does mean you have a new
supply of capital to invest. That's one reason to have a
price objective in mind when you buy, since reaching that number
may signal that it's time to sell. What's more, selling
part of your holding when an investment has increased in value
is a simple way to control your asset allocation. Otherwise you
risk concentrating too much value in a single investment or asset
class.
When the price drops
At least as important as selling to realize a gain is selling
at a small loss to prevent suffering a much larger loss. Limiting
your losses means you can move more steadily toward your financial
goals. It also means you can afford to be wrong — or take
more controlled risk — more often with less potential damage
to your portfolio value.
Thomas J. Dorsey, President and
co-founder of Dorsey, Wright &
Associates
Tom Dorsey of Dorsey, Wright & Associates emphasizes the importance of sticking with your investing strategy.
Find a methodology you believe in, one that meets your risk characteristics and financial goals. Practice it well and then stick with it.
But selling when you have made a profit does mean you have a new
supply of capital to invest. That's one reason to have a
price objective in mind when you buy, since reaching that number
may signal that it's time to sell. What's more, selling
part of your holding when an investment has increased in value
is a simple way to control your asset allocation. Otherwise you
risk concentrating too much value in a single investment or asset
class.
Thomas J. Dorsey, President and
co-founder of Dorsey, Wright &
Associates 