BPP Book Partial Profits Now!

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Arun Bhojwani is a veteran in the stock market. He has invested in the markets for more than 20 years now. He has had very few multi-baggers in his portfolio as he has very rarely held any stock in the portfolio for more than one or two years. However, he has managed to beat Sensex year-on-year over these years. “Timely profit-booking is the secret of my portfolio success”, say Bhojwani.

Indeed, profit-booking is the key to market success and is as crucial as identifying investing opportunities. Majority of the investors invest their time in analysing stocks and identifying the best stock ideas, but very few give enough importance to “booking profit optimally”. Most investors do not have any profit-booking strategy. Profit booking decision, be it full or partial booking, should also be taken after looking at the market condition. Is it the right time to book profits in the markets or should one sit tight and wait for stock prices to inch up further? That is the key question to be dealt with for success in stock market investing.

Why book profits?

Equity markets never move in a linear fashion. There are rallies and there are interim corrections. Investment advisors usually advise investors to invest for the long term. The dilemma for the investors is that there is no clear definition of what is long term. Is it 1 year, 2 years, 3 years or 5 years? How does one decide how long to hold on to any stock?

One needs to keep booking profits regularly as the markets are dynamic and the business cycles may take a U-turn, thus impacting the stock prices negatively. Also, investors have financial goals and hence it is important that an investment horizon is predefined and profits are booked accordingly to meet the goals.