Don't Disregard Your Profits

The one aspect of stock investing which surprises me the most is that money loses its significance in the stock market. What I mean by this is that investors behave differently toward money in the stock market than they do in their daily lives. In daily life, many of us have a cautious approach toward money (which is good); we tend to think twice before spending it. And surely we don't want to lose it.

In the stock market, investors frequently show a complete disregard to profits. The other day someone told me that she wasn't selling a stock that was showing a huge gain just because she didn't need the money. Another “fundamental” analyst said he preferred to keep stocks for the long term, even if it meant losing on the profits the market was offering him. Further, one bright fellow stayed invested because he didn't know any other stock to invest in. I bet the same people would behave differently outside the stock market.

I am not saying that just because your stock shows some profit, you should sell out. Selling a stock should follow a strategy, but it must be sold at some point because you make no money unless you sell it. Many times stocks become expensive in terms of valuations and it is prudent to sell them rather than blindly follow “long-term” investing principles. It's indeed wise to take money out of a stock and wait on the sidelines rather than say that you don't need the money or you don't know any other stock to invest in. You can always act later, but your stock-market profits may not always be there. The bear can quickly gobble them, while you preen yourself for being faithful to the investing principles given by your investment icon.

The profit that the market offers is real money. If you spend it, it will work in the same manner as your hard-earned money does. There's no difference. The need is to give your profits the top priority and do anything to protect them, even if it entails breaking any cherished principles of investment science.