There is nothing wrong with taking profits, but keep in mind that investors are constantly fearing regret and seeking pride. This is what is called the "disposition effect."
It is a result of the pain of an investment loss hurting much worse than the pleasure of a gain. Academic research has shown that investment losses hurt about two and a half times more than the positive feeling you get from an equivalent investment gain.
Net of taxes, whether you have a gain or a loss in an investment says absolutely nothing about its future prospects.
In a new bull market this bias causes investors to sell winners too early (seeking pride). Also, the painful regret associated with taking losses can keep investors from selling past bear market losers to buy new bull market leaders.
To help yourself avoid this bias, make sure that you have a process for buying and selling investments that is disciplined, fundamentally sound and repeatable. The bragging rights associated with quick gains are great, but the future profits you may miss could have been even better.
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Discussions
1 person likes this. Showing 6 of 6 comments
In any investment we need FA, TA & luck. That is all we need.
2013-07-14 11:14
er, I not really agree wif this statement. we sell the investment not becuz we gain the profit, but simply becuz the investment cannot help us to earn profit anymore... correct me If I m wrong
2013-07-14 11:34
Generally agree with the author. Therefore the decision to sell is very often more difficult than decision to buy. I think most of the time investors sell their shares because of the fear that bear market or profit taking may set in leading to drop in share price.
2013-07-14 22:34
Hi..Mr.Tan nobody can predict how high the price of a share can go up. As such, its never wrong to take profits. Likewise some shares the price shoot up shortly after forced selling day. Precisely small n consistent gain is better than loss. Just my 2 cent opinion. Thank you.
2013-07-15 07:03
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Ride The Bull Short The Bear
CS Tan
4.9 / 5.0
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
King Kong73
Adequate insight
2013-07-14 05:37