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Locking in a profit – is not easy in markets

Saturday 5 March 2016

Most shareholders have difficulties handling the sale of shares. This has cost many investors a lot of money. It pays to plan sales ahead of time.


For investors in securities the process often happens faster than expected. Prices fluctuate. Fate may be kind to you. Through fortunate circumstances one may suddenly have a 10% or 20% profit in a stock holding. Then the question arises: "Should I sell?"

 

In such a case we should consider two aspects in greater detail:

Fear.

 

Instead of being happy, the first worry lines appear on his forehead. What's going on in the speculator's head? "Is it not too early? But what if the stock price slowly goes back down? The profit will melt away, to only 8%, then to only 6%, and finally the whole beautiful paper profit is gone. That would be terrible. " This is all about fear - The fear of losing, ultimately the fear of losing capital. This is an issue the investor should deal with, even before buying the stock. It is suggested to first repeatedly imagine a scenario of a surprising gain in the price of the stock.

 

Every human being has his own psychological profile. What is plenty for one person, is not enough for another person. The mental framework of each investor is different. You will not find any ready-made solutions in a book. It is important to make your decision to sell in a balanced state of mind. Namely, in peace. This is not done “on the fly” or with an inner conflict and ill-considered spontaneous decisions.

 

Greed "You want it"

 

But there is a second, often fatal concern, which is why the shareholder can not bring himself to sell the equity position: The bad feeling not to have profited

enough from the transaction. The idea that the stock price could still rise further. Instead of being satisfied to realise a nice profit, the fear of missing out further rises in the price of the stock will just not go away.

 

I can assure you from personal experience that this is a very dangerous poison cocktail of the first order. Huge sums of money have already been lost:

Instead of gratitude, greed and resentment straight away displace all common sense . One worry is really not a serious concern. These are all just numbers in the air. What matters is what I paid for the stock, and how much I will get for it. When there is a profit, that's wonderful. Everything else that happens to the share on the stock exchange, has nothing to do with me. I have made my trade. The resentment that other investors could benefit further from "my" stock and continue to profit even more, has prevented many shareholders from acting at the right time to sell. With financially fatal consequences.

 

From my experience an old rule can be helpful here. There is an expression which goes: “Leave the other 10% more, for the next buyer.” I believe one can only

find a buyer for the stock if that buyer believes the price will go up further. Otherwise he would not buy my shares at the increased level. So I always plan to sell at a price which is about 10% lower than my actual target. I have trained over the years to consciously follow this technique:

1.

If the rise in price continues after I sold, I am happy for the buyer. Meanwhile, I will invest the proceeds of my sale elsewhere. I'm already busy with different shares. Or I start on something else with the money, as everything is in order.

 

2.

If a transaction is successfully completed, I only care if I am better off than before. The stock was just a tool, a means to increase my capital. When shares are sold, I rarely follow the price in the market. I've sold and will not place an order for the same share again. So why should I waste my time and thoughts, by

following further price movements in the stock. That's just nothing else but emotional nonsense. Unfortunately, this attitude is noticeable in many investors who obviously look for a reason to whine. "Oh, how awful, I sold too cheaply. If I had only had more patience. My God, how the stock has risen ...."What a waste. Unless the investor is predisposed to self-pity, or tries to attract attention. That may be the case. It certainly does not help to improve better executions on the exchange.

 

I have, for a long time now, been trying to follow an old piece of advice: "A wise investor should not get too involved with profits nor get too excited about losses" ..... That just hits the nail on the head. Believe me, this really works. Try it out. You will, I am sure see, that in many respects it will be worth your while.