How To Invest: Lock Up Some Gains At 20%-25%

Investor's Business Daily

It's often hard to figure out when to sell a stock.

Ideally, you've bought a name that will become a tremendous stock market winner, like Apple (AAPL), Baidu (BIDU) or Chipotle Mexican Grill (CMG).

But realistically, you can't expect every stock in your portfolio to perform like a champ. While a few might, others will only provide a solid gain, rather than a remarkable one. And others will head south, offsetting your winners.

Given this range of outcomes, IBD advises locking in your profits for at least some of your winners when the gains reach 20% to 25%.

It can be a good idea to prepare in advance for this sale. When you buy a stock priced at, say, 100 a share, you can make a note to yourself to sell at 120 or 125.

One reason to sell after a 20% or 25% gain is to avoid sitting through the stock's next consolidation. Time and time again, leading stocks catch their breath after advances of 20% or 25%.

If you have plenty of conviction in a name, then you'll want to sit tight through that period of price consolidation, which IBD calls a base. But you probably won't be completely enamored with every stock, so you'll want to declare victory with some names and move on.

Often, this will help you steer clear of a round trip with a stock. That means achieving a sizable profit, but then seeing it evaporate as the stock comes back to your .

At the same time, selling for a gain of 20% or 25% doesn't prevent you from buying the stock back. You could let it shape a new base, then establish a position again on the from the new base.

Earlier this year, Tractor Supply (TSCO) offered an opportunity to take a profit at 25%.

The farming equipment retailer cleared a 75.58 buy point from a in early January 1, not long after the Dec. 20 follow-through day that signaled a new market uptrend.

You could have established a position at that level, then made a note to sell at about 94.48 — when your profit hit 25%. With this goal in mind, you would have sold in early April 2.

This would have saved you from taking a round trip that was completed in July 3.

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