For those of you who bought SINA, BIDU, and RENN in May 2013 when I wrote “Should I Invest In Chinese Equities?” there are some great steak restaurants we can go to next time you’re in San Francisco. The stocks are up 35-65% in three months as the herd finally latches on to their potential!
The number one question we should ask ourselves when our unicorn stocks are going ballistic is: When is it time to take profits? Clearly such performance cannot continue indefinitely and at some point there will be a painful correction. The worst thing one can do is go from making big bucks on a stock to losing money.
One of the other mistakes I’ve consistently made in my 15+ years of investing is selling too soon. Anybody who invested in the mid-90s until now has seen the Asian crisis of 1997, the dotcom bubble of 2000, bird flu pandemic in 2003, and the mortgage market collapse of 2008 destroy a lot of wealth. We have been conditioned with fear to temper our greed, unlike those who just started during or after the latest crisis.
In this post I provide some psychology behind growth investing and when to lock in profits for maximum risk adjusted returns. Please note that executing on such insights is much harder than just providing a framework due to fear and emotion. I make suboptimal trades all the time.
KNOWING WHEN TO TAKE THE MONEY AND RUN