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Take profit on stocks that appreciated in value
30 Mar 2021 (572 views)

Someone suggested that I should take profit on the stocks that have appreciated in value. If I keep fully invested, I will be exposed to a market crash that will take away all of the profit and result in a loss.

I give my reply as follows. 

If I sell the stocks, what do I do with the money? Should I keep it in the bank account and earn interest at 0.5% per annum?

I do not follow this liquidation approach, as it is not a sensible approach.

I do sell the stocks when it go up to beyond its fair value. For each stock, I have an idea about what is the range of fair value. When it falls below the lower end, I will buy the stock. When it goes beyond the upper value, I will sell the stock.

When I sell the stock that goes beyond its fair value, I will reinvest the money in other stocks that are at the lower end of the range of fair value. Most of the time, I will keep fully invested.

There are occasions when I will hold cash. This occurs when all the stocks are at the upper end or above the range of fair values. 

What is the range of fair value?

I rely on the following indicators for value stocks:

a) Price earning ratio
b) Dividend yield
c) Discount to asset value

For growth stocks, I will look at the price range of the stock over the past three to six months. 

By monitoring the stocks closely, I get a good indication of the range of fair values. I used this indicative range. So far, my investments have been quite satisfactory.

Tan Kin Lian

 


Take profit on stocks that appreciated in value
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Someone suggested that I should take profit on the stocks that have appreciated in value. If I keep fully invested, I will be exposed to a market crash that will take away all of the profit and result in a loss.

I give my reply as follows. 

If I sell the stocks, what do I do with the money? Should I keep it in the bank account and earn interest at 0.5% per annum?

I do not follow this liquidation approach, as it is not a sensible approach.

I do sell the stocks when it go up to beyond its fair value. For each stock, I have an idea about what is the range of fair value. When it falls below the lower end, I will buy the stock. When it goes beyond the upper value, I will sell the stock.

When I sell the stock that goes beyond its fair value, I will reinvest the money in other stocks that are at the lower end of the range of fair value. Most of the time, I will keep fully invested.

There are occasions when I will hold cash. This occurs when all the stocks are at the upper end or above the range of fair values. 

What is the range of fair value?

I rely on the following indicators for value stocks:

a) Price earning ratio
b) Dividend yield
c) Discount to asset value

For growth stocks, I will look at the price range of the stock over the past three to six months. 

By monitoring the stocks closely, I get a good indication of the range of fair values. I used this indicative range. So far, my investments have been quite satisfactory.

Tan Kin Lian