Partial booking of profits is a Must!

Partial booking of Profits is a MUST! – my broker’s favorite statement!

I seek to invest in dividend yield stocks, believe in Buffet’s theory that “a share should be bought forever” and at the same time a proponent of booking partial profits on a winning position. Especially if a small-cap stock is up significantly, locking in some gains is surely useful.

Why should you book profits?
Well, you invest to book gains, so get some capital back and put it in a different asset class or in an index. Coming in and out of the index is like moving money into and out of a savings bank account.

The other thing of course you now have some extra capital to invest in some new story that you have found. I have been through ups and downs – there are many people who do not appreciate a 3 year bear run. Cash is useful when there is a sale! Either you can buy more of the same share or pick something really cheap just because there is a distress sale by some fund house or a big investor. Fire sales are common when the index is down.

Having taken away a big part of the cost or sometimes the whole cost, the mind does not mind letting the share do the home run.

2 examples that come to mind are one lousy share called Deccan Gold (FV 1). This was lying in my portfolio at a cost of Rs. 12-13 per share. I sold this share from Rs. 50 to Rs. 135 (it peaked at 144 I think). Though at the price of Rs. 135 sold just 400 shares, it helped me create a buffer ‘cause I had sold a nice bunch at Rs. 107! Now the current price is Rs. 20. Clearly for me Deccan Gold was only a price story – not much of a clue on either the management or Gold prices.
Last week I sold some shares of EID Parry at Rs. 325. Logic? Sugar has peaked for sure?

Well no clue but I need to take some money home too!!

It is very difficult to explain all this to clients. Most of them know only 2 things – buy all or sell all. Hold partially is a different emotion!

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One Response to “Partial booking of profits is a Must!”

  1. Dr Mohammed Ali Khan on August 29th, 2009 at 2:51 pm

    Buying is easier than selling
    ( and sometimes watch the price go up and up.. like it happened to me with TATA MOTORS )

    I saw an article which said to get out of stocks when the SENSEX PE crosses 20 to 22..
    Its currently trading at 18..
    Is it because the price is too high or the earnings too low ?

    Incidentally I am going through many of the annual reports of the companies I have invested in .. In spite of one of the worst recessions since 1930 .. many companies have reported a profit growth of atleast 15 to 20 %.. creative accounting or Cost cutting ?

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