Do you book out of your investments too early? Here are my 5 ways to deal with a sudden increase in the share price of investments and let the profits ride
Believe me, and it is tough to deal with a sudden increase in the share price of a stock you are holding.
It is so tempting to book profit. Moreover, it is so intuitive to book profits in the market. However, investors making big money in the market were the ones who have held onto the advantages and let them ride.
So once you realize it is tough to hold on to the profits, I did everything to make sure I am holding my profits this time.
So let me share the process I use to hold my profits when, in a short period, I made decent returns.
The Investment in Divi’s Lab
My investment in Divi’s Labs. On 14Jul2017, when I added 400 units of it in my portfolio. The idea was to accumulate a few more down the line.
I added some in my wife’s account in the coming months.
In the meantime, the company solves all its USFDA issues. The stock rallies 40% from my purchase price.
The return on my investment was considerable.
On my total investment of roughly 4L, I was making a profit of 3L in under four months. Very tempting to book profits when we know the market is likely to correct.
So how I deal with such a scenario?
How to Deal With Sharp Increase in Share Price?
It’s not easy, but then it is not impossible either.
Forget Your Investment
The easier of all to deal with such a scenario is to forget it.
I knew the business had done remarkably well, and it is one of the main reasons for an increase in the share price.
So it is one of the investments that should be part of the invest and forget the list.
It is easier said than done but is something every investor has to be doing.
If you can’t forget your investments, you are likely to book profit.
Avoid Checking Price. Instead, Check EPS
When you know the business is doing good, the next best thing one should focus on is EPS and not the share price.
The day to day price movement can be tempting to book in and out. Once you only are concerned about the EPS of the company, it can change once every quarter.
Make calculations on when the company can reach an EPS value equal to your buy price. Shift all your focus from price to EPS.
Avoid Following every News
If you happen to hear some bad news coming up and have reasonably large profits in the investment, you will be tempted to book out without analyzing the story the right way.
I did the same with my investment in the Tata Steel investment on the back of the Brexit news. I thought the bad political scenario in the UK was bad news for the company. The stock doubled after I was out.
When business is on the right track, it needs time. Moreover, there is little the external bad news will matter. When business is on the growth trajectory, the bad news is more of an investment opportunity than booking profits.
Make up Your Mind to Add More in Fall
The correction in the stock can’t be ruled out when it shoots up. Make sure you have the right mindset to accumulate more in the fall.
The reason I couldn’t accumulate Divi’s lab more was, I waited for a more significant correction that never came in the stock.
In the correction of 2018 and 2019, the stock hardly saw any significant correction. It is also one of the main reasons why I invested heavily in one go in Lupin as well. I thought the day USFDA issue is sorted for the company; the fate of this company will be the same. Though things didn’t work out the way, I assumed.
Look for Other Opportunities
Finally, assume the opportunities are endless. So if you have an investment in one stock where you wanted to invest more but couldn’t doesn’t mean it is the end of the world.
If you are ready to look for the right kind of opportunities, they will come to you. You have to make sure you are prepared to get the process to stock picking right by having a pre-investment checklist, business, and fundamental analysis along with the business checklist.
Final Thoughts
How did you deal with a sudden increase in the share price of your past investment? Share your views in comments, and I am sure it will be of immense help to others.
Can you explain how “Avoid Checking Price. Instead, Check EPS” works.
Pidilite trading at Rs. 1405 or Rs. 1395 won’t much of a difference even if you keep refreshing and price.
But if the company is having issues making more earnings and sales, its EPS will not increase and that can be a cause of concern.
Thank you.
What public websites would have EPS data for past few quarters?
ValueResearchOnline
Thanks