HOW TO AVOID DESTRUCTION OF WEALTH AND LOCK IN YOUR STOCK MARKET GAINS

Stock market investors have had a good run in the last three years. But what to do with the wealth that you have generated from the stock markets today? Let's look at ways to lock in those gains. After all, the only thing worse than not making a lot of money, is making it, and losing it!

- RAHUL GOEL

Here are three simple ideas on how to lock in those gains.

First, and this is perhaps the most crucial, the surest way to lose your stock market gains is to continue remaining invested in bad businesses. Whether such stocks have done well or not for you, you need to get rid of them. These stocks take the hardest hit when markets turn for the worse. Some prime examples of such stocks from past bull runs are Mazda Industries (1992), Global Tele, Pentamedia and HFCL (2000), and Reliance Power, Unitech and Reliance Capital (2008). You will note that these are often very popular stocks that rally purely based on narrative. Their valuations are completely out of whack with reality, and yet, money continues to chase such stocks. And then of course, they completely destroy shareholder wealth. Look out for these characteristics in stocks you own and dodge potentially massive destruction of wealth.