Which Stocks To Sell First? - Views on News from Equitymaster

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The Equitymaster Research Digest

Which Stocks To Sell First?
Aug 9, 2016

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As I write, my StockSelect team is very busy. We will shortly send out a special report recommending subscribers book profits on two past recommendations that have met their target prices.

Will come to that in a bit...

First, let me ask you few questions about selling stocks.

Imagine this simple scenario...

Say you own the stocks of three different companies. Stock A is offering 100% gains. Stock B's valuations have gotten expensive but is offering just 50% gains so far. Stock C has fallen 20% from your buy price.

Now, if you had to decide which stock to sell, I bet most readers would choose stock A. That's because when we sell, we want to pocket the maximum gains. Most investors equate booking profits with taking the big gains off the table.

It's a nearly universal impulse. But it's a terrible investing choice.

Study and study shows that we sell our winners too soon and ride our losers too long. A wise investor will do just the opposite. He remembers the old adage: 'Let your winners run and cut your losers short.'

But what if you have two winning stocks? Which one do you sell first? In other words, what should be your sequence of booking profits on stock A and stock B?

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