The stop loss and being disciplined with your portfolio

With many portfolios, there will be some runaway success stories, some horror shows, and also a lot that does fair to middling in the middle. That's to be expected.

But when it comes to managing your portfolio, what should you do? Well, let's look at the two key cases to consider. First a share that does really well, let's say, doubling in value over the course of six months. Now should you leave it?

Well ultimately what you do is up to you, but many disciplined investors would recognise that their portfolio now contains much more of that particular stock than they had originally planned due to it doing so well and would think their portfolio has therefore been slightly unbalanaced by it. In the absence of a strong feeling that it is going to continue to rise, they would therefore take some profit here to bring the percentage of their portfolio in that stock back in line with the starting amount.

Some people get greedy and keep on thinking a price will go up and up: if you have a good profit on paper it is often worth taking it though; remember a profit in the bank is a profit, a profit on paper is no profit at all!

And on the flip side, there is the fact that many will throw good money after bad, despite the expression, and if an investment falls they will keep on buying it at the lower prices, convinced that it is going to go back up. That's dangerous.

The stop loss in the title refers to a very useful mechanism on most share trading accounts these days: you can set a floor which if the price of a share hits it gets sold automatically. This means you can cut your losses and limit your risks, so for instance if the price falls, say, 25%, you can set it to be automatically sold.

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The stop loss and being disciplined with your portfolio

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