Okay, you have your investment portfolio allocated among stocks, bonds, real estate, etc and you have at least 20 investments with no more than 4 – 5% invested in a particular item. When do you sell a stock, bond, etc. You need a strategy and the best one I have found is trailing stop losses.
Say you have a stock you bought for $10 a share. You decide to keep a 20% stop loss on this stock. if the stock ends the day down 20% from when you bought it, or $8, you sell it the next day. But this is a trailing stop loss, so if the stock goes up to $15 a share, now your stop loss is 20% of the high, so if your stock ends the day at $12, you sell the next day. Waiting until after the close cuts out the intraday fluctuations that occur in the market.
So you sold your stock for $12, giving you a profit of $2. You lost some profit on the deal, but gave your stock enough room to continrue to grow. Say the stock went down to $13, then the next day, jumped to $20; now your stop is $16 You allowed your stock to grow while protecting your downside.The saying I keep hearing from successful investors is “cut your losses and let your winners run.” This strategy lets you do that.
If you follow the allocation and selling stategies I outlined, You are only risking around 1% of your portfolio on any one idea. You are managing risk while still giving yourself a lot of upside in your investments.