Profit booking/Exit decision
Well, the idea is to exit/book profits as soon as your targets are met. Assess if it can still double form here within the next 2-3 years. If not, you are better off taking it out and putting it in the next opportunity that can compound at 25% plus CAGR. If nothing can, i.e. markets are way overpriced, you better stay in CASH and wait. Mr D can wait endlessly:) I can’t get him excited at all:).
In 2008 I did not have access to Mr D or others. I had no experience of a bear market, like most others who started in 2005 or so. Consequently, I have a pretty poor track record of exiting in 2008 - I stayed invested, completely, throughout the mayhem:) …with not much pain…BUT huge huge Opportunity costs!
So, from what I have assimilated so far (understood, but way to go in practice):
1). Short Term Portfolio : You start booking profits once your targets are reached. Think Pondy Oxides, Rs 30-45, our 50% appreciation target happened in 1 or 1.5 months. I booked 20%, saw it ride to 60, booked another 25%, touched 70…sold another 35%, and back at 65…exited completely. Veterans have told me…just as you get in slowly and keep betting more as conviction builds, exit also slowly never at one go…so you can ride most of the way…never wait to cream it off fully, either!
2). Long Term Portfolio: Whenever my target of doubling gets met, I must book profits if I think the stock cannot double from here again within the next 2-3 years. Take the case of Mayur Uniquoters (it has corrected with overall market) it had almost doubled form my entry of 230, but it had not got over-expensive, the valuation gap had ceased. In my books Mayur can keep compounding at 30% for next 3 years. I agree with Hitesh, anywhere around 370-380 is a good price for additional buys (may be re-entry for him!).
2008 like situations - where everything is primed for one big fall. You better conserve CASH. if your picks have been right, then you would have met your targets anyways, and would not find anything that will compound at 25% CAGR
That’s only the theory. I have to see how well I can stick to the discipline!
Do I have the character or the stomach to be emotionless about my winners? I still have to get rid of my legacy large caps - Infy, Bharti, Reliance, Telco and BHEL, L&T for my wifey’s. I have done 50% of the job, balance 50% as I build more conviction!
includedright? beon
Vinod