Be Smart, Take Profits then Celebrate Success
Posted by Blain Reinkensmeyer
August 7, 2007 at 11:36 am
A very common mistake by newer investors, the tendency to celebrate gains and profits before you have even sold out of the position will only lead you to disaster over time. It doesn’t matter that you are up 20% in five months on your favorite stock, until you see that cash in your online broker account the gains are still known as unrealized.
Unrealized Gains
When you are in a position that you are up in and you sign into your broker account, you can check your portfolio summary and your portfolio value will reflect the most recent prices of your positions. The added value you see of your positions when you do this are known as “unrealized gains” because they are not yet set in stone.
These unrealized gains can be a new investor or even skilled investor’s worse nightmare because the psychological effects are immediate. You feel great because you are winning, and you almost always want more.
Sell For a Profit, Than Celebrate
Some investors will argue that the toughest part about trading stocks is not when buying, but when selling. I believe this is true because unless you are trading with a strategy your mind has no way of knowing that, “this is enough profit” or, “we’ve lost too much, sell out now”. It is critical to have the knowing inside that you cannot enjoy the profits until they are actually YOURS.
Until that position is sold out completely, nothing is set in stone. I have seen so many times the big talkers yuck up their great victories before there was even one. I know because I used to do it, until I got burned myself. Save the pats on the back and the phone calls to friends and family on that big winner until you sell out… completely. Simple as that.
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I actually did that several time (celebrating without selling!). Until that day where I was “making” about 2K on penny stocks and the final results of the mining exploration shown nothing good. I finally lost 4K in the transaction. I was bragging about this stock for a while and when it happen, my portfolio was nagging me back! I never celebrate without selling anymore!
that’s the way to be, I hate learning the hard way though