The Best Way to Manage Gains on Your Stocks
I want to talk about questions that have come up from you in terms of how we manage our gains. And truthfully, this is, I believe, the first time I’ve really been asked this question, because usually people asked me how I manage our losses. And you can see now from our sales of General Electric and IBM and Chipotle how we manage our losses, which is that we have a small-loss strategy, and we cut our losses off based on the small-loss strategy or, in some cases, if there’s a system violation, which is that the stock no longer fits our GoingUpness system.
Now, in terms of gains, I’m going to repeat things that I’ve said to you before because I believe that this is the right way to manage your gains, which is that it never makes sense to sell stocks that are going up because these stocks are going to be the same stocks that can generate even higher gains.
I understand that it makes many of you nervous to hold stocks that have massive gains, and you worry about giving them back. However, if you do these things that I’m going to tell you about, now you won’t worry about this particular thing.
Never “bet the farm” on a single stock. If you do this and I make a mistake and something goes wrong, you’re going to end up losing a lot of money. And you won’t get rich and you can’t get rich by losing money. So this is the single worst thing that you can do.
If you’re worrying about gains all the time, it’s likely that you own too few stocks. I’ve told you before that the best way to use Profits Unlimited is to buy a small amount of all the stocks that we recommend to you. That way, you’re not tied emotionally or mentally just to the performance of one single stock, and you’ll start to focus on your overall portfolio and the gains in that overall portfolio rather than any single stock.
Now, if one stock goes down in a single day, you can always look at many others, some of which will be going up on that day. And that makes it easier for you to stomach the volatility and the ups and downs that come with owning any single stock.
One other thing I want to mention that’s related is that if you’re unsure how to weight the stocks, I would tell you that one of the best ways is to simply own an equal amount of all the stocks that we tell you to buy. For example, you can buy $1,000 worth of every stock. Or if you have a bigger portfolio, you can put $10,000 into each stock. And that, once again, will keep you shielded from feeling really down about volatility from just owning one or two stocks.
The other thing that I would say is that for me, personally, stocks have always been a means to an end. And that end is a better life. I have used the profits from stocks for buying houses, cars, in some cases going on vacations, paying for my kids’ expenses, and you should feel the same. At any point in time, if you feel like you have a compelling expense, you should use the stocks in your portfolio, sell them down and pay for those things. Stocks are a means to an end for a better life, and you should always feel free to sell some of your stock to fund these things in your life.
Finally, I would say that if you find yourself stressing about your gains, losing sleep about them, sell some amount of that stock until you stop stressing, until you stop worrying about it. And once you sell it down, and you’re able to sleep and stop stressing, that’s the right level for you. Often times, people will buy too much of a single stock, and it causes them too much worry, and then it stresses them out too much.
So this is the way that I would tell you that you should manage your gains because it’s the way that I manage my gains.
I’ve been investing for more than 25 years. I started my career on Wall Street in 1991 as an assistant portfolio manager at Bankers Trust. I quickly advanced to prominent positions at Deutsche Bank and ING, managing multimillion-dollar accounts. In 2006, the owners of a $6 billion firm named Kinetics Asset Management recruited me to manage their hedge fund.