Why It’s important to take gains

using Salesforce as an example

One of the things that I have learned is that you have to take gains, (and sometimes losses). I've been investing as a Portfolio Manager for 15 years and there is one thing that is crucial to being successful. Truthfully, there are 5 crucial steps to be successful at investing, and we'll cover all those in time.

One crucial step in investing is to know when to realize a gain. If a stock is running up and up and up you may be tempted to "let it ride!" because you think it will go to the moon. Maybe it will, maybe it won't. When we're constructing models or portfolios for clients, we set targets for how much of the portfolio will be allocated to that one investment. We allow for a certain amount of growth based on the type of company it is and the likelihood that it will swing dramatically. We might buy Salesforce for example, for 5% of the portfolio and allow for a run up to 7.5% (50% increase). As it continues to go higher and higher, you might start to get excited and think we're geniuses.

As evidenced by Salesforce stock action today, a large gain can go away (poof) in the blink of an eye. The smart thing would be to have taken a gain somewhere in the $300 price range, just in case. If you sold at this relative high, you can live to fight another day, or buy it again if it drops, like it did today. Buying and holding stocks that continue to go up is a great way to grow the portfolio, but if you don't want to ride the stock market roller coaster, remember to take gains along the way, or talk to a professional so they can do it for you.