IF YOU THINK knowing when to get into a stock is tough, try deciding when to get out. While we ideally want to stay with a position for as long as possible, there’s no federal law that says you must hold Intel (INTC) until your dying day. A trader is just like a trapeze artist, who, while swinging high above the circus crowd, must master not only grabbing onto the next bar, but letting go of the one that came before it.
When it comes time to prune your portfolio, the first stocks you should consider selling are your losers. There are the obvious tax advantages of doing so. But even more important is the likelihood that losing stocks will stay losing stocks. Very seldom does one of my holdings come back from the grave.
But what about selling your winners? You might have some. Although the major averages are under water year-to-date, there are actually plenty of stocks that are doing quite well.
So if you are fortunate enough to be sitting on some winners these days, how do you know when it’s time to take the money and run, as Steve Miller puts it? What is the smartest way to turn a paper profit into the real thing? (more…)