If you have a share in your portfolio that has done very well over the last few years and so now it forms a large part of your portfolio, should you sell some of it and look to invest that money in another share with good prospects, or hang onto it and hope it keeps running with the risk that if it does fall, it hurts your portfolio a lot. Discuss for 10 marks :)
With my little experience, it is now time to apply solid risk management (reduce ones weighting in individual shares). It is likely that expensive shares will take a knock. One needs to compare the 'knock'versus cost of tax and make a decision. I've reduced my positions completely and now i enjoy the correction. Will get in later again.
Its a debate I constantly have had for the last 19 years and as a full time investor I relied on dividends,interest and some capital gains to survive and support my family.My basic approach is to look for shares that pay a div around 5% and a pe of 10-very difficult today in this market.when one of my shares doubled in value I would often but not always sell 50% to get my money back and put the money somewhere else based on above investment criteria.If a shares div fell below 1% and this was not understood by me as being just a once off I tend to dump share and look elsewhere.having said that the best investment I have ever had I invested in 19 years ago and have never sold one share-the current dividend exceeds my initial purchase price.Today I have more in cash than I have ever had as I believe shares are very expensive and will only start investing again when share market corrects significantly.this may sound like I know what I am doing but do not be mislead I have made hundreds of mistakes but I have prospered and survived for the last 19 years and I hope one day to come up with a better strategy.
I look at shares in probabilities, what is the probability that the share will go down to what is the probability that it will go up, in this market , at least for the next six months, you have come to the conclusion that the chance that shares will go down from here is probable 70 % to it go up as 30 %. Nobody ever became poor by taking profits and reduce risk.