Thursday, March 17, 2016

Should You Be Taking Profits In This Recent Rally?

The recent rally since we hit the bottom in Feb implies STI closes officially flat since the start of the year. 

If you have been buying aggressively when STI hits the low of 2528, you should be making quite a decent profit right at this moment. I was fortunate to participate in this small rally which has boosted my performance to date to +5.1% for the year so I am pleasantly pleased that the strategy of dipping more warchest into the market when everyone is not buying works well for me. 

When you had profited from the recent rally like this, the problem of taking profits immediately comes to mind because you think this is decent profits which is earned within a short span of time and these proceeds can be used to buy back the same stock when market goes down later. The issue of challenging yourself to be smarter than the market always revolves around, especially since the economy is so weak and there are plenty of bad news right now. I am tempted to do the same myself after seeing some of the counters I’ve bought rise up rapidly in a short span of a month.




However, thinking back of my plan, I decide against it.

My own investment strategy involves buying low on one leg and selling high on the other leg. Unlike some investors who adopts a buy and hold strategy, I believe there is a price to every businesses we own and that every investor should consider the selling aspects equally as important as the buying aspects. Whatever method is used for buying and selling is based on the investor himself, but we should be open to selling when the stars are aligned. 

So with the markets in the rally now, should you be taking a bite and locking in some profits? 

Based on my experience, it is never easy to do that. 

I’ve shared my previous experience about selling a couple of good fundamental winners such as Boustead and Comfortdelgro in the past and I’ve never had a chance to get it back at a cheaper price anymore. This is because a good company will progress forward as time allows and the share price would follow. There are many instances to such cases like Vicom and RMG whose share price has a clear uptrend over the years. It is difficult for an investor to buy back at the price they want if their decisions to sell are wrong. 

When you sell the shares in your portfolio, you would also need to think about how to best utilize the proceeds in a given environment or allocate them to a better investment. These are all not easy decisions for an investor to think about. If you sell and the stock goes up and up, then you’ll lose the opportunity to profit with the company. 

Ultimately, it is the investor’s decision on whether he should sell in this given rally. 

But if you are a long term investor with time on your side, I think it might be a worthwhile decision to sit with your winners and let the growth and earnings compound over time so that you’ll see a much better returns compared to the small profits you are locking in at this moment. 

I'll be trying to do that, at the very least for the winners in my portfolio, even though I could have regretted later on.

What about you? Would you take profits in this rally?

12 comments:

  1. Being paid to wait with dividends would be my preferred choice of dealing with this :)

    ReplyDelete
    Replies
    1. Hi Unluckid

      That's my plan as well for this upcoming rally.

      Anyway, not as if we are looking at STI in an overvalued position.

      Delete
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  2. Be faithful to old mistresses but for new mistresses how to trust them. Kick them aside and see how. LOL!

    ReplyDelete
    Replies
    1. Hahaha, first in last out... applies to every mistress we have :D

      Delete
  3. Hi B,

    I have added the 3 local banks to my portfolio near their lows this year. Definitely not taking profits. They will be my core long-term holdings for sure! :)

    ReplyDelete
    Replies
    1. Hi DK

      I saw that you added the banks into your core portfolio, looks like it's a very wise move doing it when the banks are cheap :)

      Delete
  4. I'm still holding a stock which has gone up almost 50% and became almost 20% of my portfolio. It's hard to decide whether to sell or not. I think I'll just sell a bit to rebalance the portfolio.

    I wonder how people deal with multibaggers.

    ReplyDelete
    Replies
    1. Hi owq

      congrats that's amazing.

      I guess the only way we can deal with multi baggers is to constantly review and value them on an ongoing basis. Ask if there are still growth or if valuation is warranted at that point in time.

      Of course, if the conviction isn't strong, then i guess it's better to take off some profits there.

      Delete
    2. multi baggers, thats a good problem.
      i wish i had that problem.. haha

      cheers,
      foolish chameleon

      Delete
  5. *deep breathe, breathe out*

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  6. still mostly vested

    would go to 10% cash if STI goes to 3300 level or higher

    ReplyDelete

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