TAKING PROFITS AND THE POWER OF COMPOUNDING

Taking profits sounds like an obvious thing to do, but it can be difficult if you are not able to constantly check to see what your investments are doing. If this is the case, it may not be a bad idea to put a sell order in advance.

To  illustrate the importance of taking profits, let's look at what occurred with GEOY stock. In early December GEOY was trading between $18-$19. Let us say you bought it at 19. Between January 3 and February 3 GEOY stock went to $23.20 or higher on 4 separate occasions and each time had pulled back more than 5%. It was pretty obvious that 23 was a good price to sell it. The stock's action was telling you loud and clear that this was the case. If you had done so, you'd be sitting on a nice 21%. A $10k investment would now be  $12,100.

Now listen closely, here's where compounding becomes really interesting and profitable, lets say you re-invested the $12,100 and a stock that you bought went up just 4%, not an unrealistic scenario. You would now have nearly $12,484 and your portfolio would be up nearly 25%.

On the other side of the coin, if you would have held on and did nothing, you would be disappointed to see that on February 15, the stock sold off and went down to $19.38 inter day. If you sold then-which many inexperienced investors do-your portfolio would be worth, $10,200. Think about it... $12,484 or $10,200? What a glaring difference right?!?!? TAKE PROFITS.