Tuesday, 17 June, 2008

Buffett on Booking Profits

Buffett on Booking Profits

The markets are turbulent. Share prices, as usual, are going up and down like crazy! In the melt-down since January, much of your paper profits have evaporated into thin air. Some of your scrips are still quoting at levels which enable you to get out with some profits. Other scrips are well below your original purchase prices.

What should you do now? Should you sell? If so, which ones? If not, when should you sell?

This has always been a major problem for investors. They get to know what to buy and when - either based on their own research, or based on "expert interviews on TV", "Wonderfully written articles" in business papers, broker recommendations, tips, etc. On the sell side, there's hardly the same quantum of advice available.

Hence, it is worth listening to the ever-green Sage of Omaha:

Warren Buffet, Mr Buy-and-Hold himself, has been known to sell. In a letter to Berkshire Hathaway shareholders in 1987, he wrote: "We are quite content to hold any security indefinitely, so long as the prospective return on equity capital of the underlying business is satisfactory, management is competent and honest, and the market does not overvalue the business."

In other words, he would sell when a holding rises to a price well beyond what he thinks it's worth. He has also been known to sell at a loss to raise money for a potentially more lucrative opportunity.

Becoming fixated on what an investment used to be worth is a loser's game. The money that is gone is gone, and there's nothing you can do about it. Far better, then, to focus on where your investments are now and find the best opportunities for the future.

So, when should you book profits? Ideally, when your investment goals are achieved. If a goal is achieved you should book profits and keep moving.

Hope that this gives you some nice clues on when to sell and what to sell from your wide range of winners & losers!



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