A common saying on Wall Street, and for good reason. Although the stock market has been acting very well in recent weeks and today’s 200-point gain is a good start to this week, I am not going to be bashful about taking some chips off of the table for my clients and you shouldn’t be either.
It is a contrarian move (not surprisingly, coming from me), as the market is breaking through upside support levels on a technical basis, but I want to have some cash on hand to make purchases during the next correction. When will that drop take place? I have no idea but it certainly will come. I would not be surprised if it was soon. After all, the S&P 500 has rallied from 666 in early March to 907 in early May, a gain of 36%. Still, we are up less than 1% for 2009.
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There’s always a time and place for taking profits and this might be one.
And although the statement “You can’t go broke taking profits” is, by definition, true… I have to point out Peter Lynch’s assertion in One Up On Wall Street that this is one of the beliefs that kills people’s long-term investment returns.
After all, let’s say you sell a stock of a great company that’s up 100% and it proceeds to climb another 400% in 3 years? That’s a lot of “profit” left on the table.