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Importance of Profit Booking for Long-term Investors
(Source: www.sgmoneymatters.com)

Importance of Profit Booking for Long-term Investors

When it comes of profit booking, some investors’ book profits in shares in the rising market, some traders’/investors’ book profits after coming in profit, some prefer to book profits after stock analysis, and there are some investors who sell their outperforming stocks to book profits in the stock market.

Have you ever wondered why would somebody sell his/her outperforming stock to book profits?

Well, as you can see that the stock market has been on an extraordinary upswing and investors are finally getting it with inflows pouring into stock markets. Despite this many investors often forget that buying is not the only thing. The selling is as important as buying. One has to book profits period.

Now the question arises is, When should book profits in the stock market?

Profit Booking for Long-term Investors

Is it when valuations are high or when the price run-up or hold until you don’t reach your financial goals?

Well, from the above statement one thing I can tell you is that you don’t need to hold on to your stocks for far too long to achieve your long-term financial goals. I agree if you’ve heard that staying in equities for long-term is the key to create huge wealth and potential profits. But, it cannot be achieved if you don’t book your profits.

To better understand this, let’s take my own example:

I bought Reliance Industries Limited (RIL) at an average price of Rs. 1,000.00 and sold at Rs. 1,105.00. I booked a profit of Rs. 105.00 per share and exited the market. After booking profits, I re-entered the market at Rs. 980.00.

In this scenario, if I continued holding my RIL shares for long-term investment and would not have book profits then opportunity loss for me was of Rs. 105.00. The reason I booked profits on my RIL and shares because I am certain that Reliance would once again regain its Rs. 1,105.00 level.

By booking profits I can hedge my risk and reduce average cost without losing the sight of my long-term financial goal.

One can take advantage of volatility in the stock market to book profits.

Second, the stock market has now become more volatile than ever. You can guarantee if a performing sector of today might not be a non-performer tomorrow. The best example is Reliance Communications Ltd. (RCOM) who once at an average share price of Rs. 847.00 is now reached to just Rs. 5.95. So, RCOM is a perfect example to indicate that holding onto an investment for long-term might not be a good idea. And one should sell time-to-time.

Final Thoughts: –

In the stock market, the stocks can move either way, but a smart investor is the one who can take advantage from this volatility during bull & bear market without deviating from his/her financial goal. The short-term volatility doesn’t affect the long-term investment strategy. But, one should always find a way to identify and grab the opportunities and book profits.

Nevertheless, if you have any doubts or wanna suggest something then doesn’t hesitate to mention in the comment section below.

Note: The article/calls and advice are subject to caveats. Postman News doesn’t bear any losses on these advices as such.


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