What criteria should I use to tell when it is time to take the profit on stock that has increased in value?

Answer 1

Depends on how long your timeframe is for trading and your tolerance for "bumps" in the road.

In general, you should have a stop loss on your stocks that have made a profit. This stop loss, serves to protect your profit if the stock pulls back and/or goes down.

Typically, I'd set my stop loss at a point just below where I'd be comfortable letting the stock dance around a little. So if the stock is at $63 and I want to give it $3 to "dance", I'll set my stop at about $59.80. This is predicated on the fact that I think the stock will go much higher than $66 still.

The reason for that is if I'm going to risk $3 of profit ($63-60), I better get at least a 1 to 1 return on it.

On new trades, I don't take any trades that aren't at least 2-1 minimum, frequently choosing 4-1 or better trades to enter instead.

Hope that helps!

Answer 2

That is one of the two most difficult decission to make in investing. A lot depends on what your investment objectives are. If you are a long term fundamental investor, there may be certain stocks that you would not wish to sell ever. JNJ, MMM, WMT, BAC and the like. Sometimes stocks run ahead of themselves however as they did in 98 and 99. At times like those, one would have a very good case for issuing a sell order. After all I am not sure there is any stock worth 30x earnings much less 50x or 100x as happened back then.

There has been a lot of theoretical work done on the subject of portfolio rebalancing. Based on this work, if one rebalances ones portfolio once a year taking some of the profits off the table so to speak, historically one in the past would have returned about 1.5% more annually then if not. Of course that assumes one is invested in multiple asset classes. Most are not. But the idea is that investments that have increased greatly during the year, will very likely tend to return to a more normal return and those that have not will tend also to return to a more normal return, so move some money out of those that have done well and place it into those that have not.

Answer 3

This depends on A) how much you've made and B) where you think the stock is heading. Are you up 200%? Sell. Do you think the stock will continue to rise? Wait, then.

Answer 4

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