Investing Basics – Feel free to ask the most basic questions

Not an easy question to answer, in the sense that, there are many angles to it.

Say for example, if a stock is part of one’s core PF, like one is certain of the company’s foreseeable future, its growth, profits or if one wants to have a stock which provides stability, then there is no point in trimming the position, or taking the capital back etc.

On the other hand, if it is a stock or a stock from a sector that is fancied right now, so despite its future potential, if the growth of next 2 or 3 years is priced in already, there may not be any further price appreciation. One can take a decision basing on PE, margins, share holding pattern, management’s and competitors’ commentary etc, and other such quantitative or qualitative factors.

Or if the invested capital is substantial, if it is big, then the capital can be taken out and the profit can be left.

Or even if one is sure of the company’s future, if the chart structure is not strong, one can observe for sometime and can either come out of it entirely or just take the capital back. And if it falls more and consolidates, then one can initiate a position again. Charts help here, because sometimes stocks consolidate for months, so it may not be beneficial if one books profits, because the price may not fall after one has booked profits. Moving averages may help too.

Or to give a small psychological happiness, one can book some % of the profit, say 25% and leave the rest, if the price falls, 25% has already been booked, and if the price rise, 75% still grows.

I am sure, there are many other ways of looking at it.

So there are no rules that can be applied in situations like these, everything is subjective and also each stock is different. Along with the understanding of the business, performance of the stock, psychological aspects are also at play here. If for any reason if the stock doubles from here, and one has booked the entire profit or even just the capital, how would he feel? Or if the price does not move for a few quarters and time correction happens, how would he feel then?

I am yet to experience everything I have mentioned above, so do take my words with a bag of salt.