Maximize your stock investment strategy by eliminating losers

ID-100142022An effective stock investment strategy comes with the realization that a small profit is better than a small loss!

Always remember this as you manage your portfolio. Also, remember you will not go broke if you lock in your profit at a lower level while the price of the stock continues to go up. While you will not achieve additional gains, it is far better to lock in your profit than hold it too long and take a loss. The amount of profit that you need is a personal decision. Do not be ashamed to lock in a profit when you feel that your downside risk is greater than your upside potential.

Elsewhere on this site, I have told you that buying a stock and just holding it forever was probably not a wise strategy. The problem with this “Buy and Hold” strategy is that you weather all the bad times while trying to take advantage of the good times. If the stock stays flat over the course of a year after growing 10% the previous year, you only make 5% over 2 years, and that is probably not robust enough. Inflation takes a 2-3% bite out of your spending power so over 2 years you lose 4-6%. You probably lost money on that stock investment or at least minimized its ability to increase your wealth.

You should evaluate your stock investment holdings regularly to see if you would buy the stock again given the information that you have today. While the stock may have been the right thing to buy yesterday (or last week/month/year), is it the right one to buy today? At a minimum, you should check your Fair companies that you invested in to make sure that they are not Poor companies now. Also, every company that you invest in should be profitable for the latest fiscal quarter and the latest fiscal year. You cannot confidently invest in a company that is not profitable.

This constant re-evaluation is necessary simply because there are other investments for your money. When one stock investment is flat, another company may do remarkably well. For nearly every economic period, there are companies that struggle and others that prosper. You do not need to keep your stock investment in companies that struggle. They can struggle without you. Put your stock investment money in companies that take advantage of the current economic climate.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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