How to collect profits if you are holding for the long term?
I feel stupid for asking this, but maybe someone here can give me a clear answer. I'm sure others are wondering the same thing. The stock market is pretty hot today and you would like to take profits. But are you doing it?
If you want to go long term and hold for longer, why would you take profits? And even if you do, if everything else is running at full speed, what are you investing in if you're just waiting for a downturn? I can't imagine any waiting for a downturn, unless there's a major recession or second pandemic, so that it's profitable in the end in numerical appreciation.
I'm just trying to figure out if I should just HOLD my gains and either continue in DCA or take a portion and reinvest in other stocks while keeping a portion still invested.
This is something I ask myself from time to time. It's hard, because I never know what's coming. But mostly I just shop low and hold. If I know it's a quality company and I see potential in it, I hold and don't sell. After all, for me, long-term investing is the best method and it's really not about whether or not I take profits and I don't sell when the stock is down 20% and vice versa. Of course, there are some stocks where I would probably take that profit.
I buy individual stocks based on some research and an investment thesis. If the stock fulfills that thesis or exceeds my expectations, then I do additional research on what to do. If I then don't see the company making sense relative to, say, large index ETFs (within their average historical performance), then I realize gains or allocate them to other companies (I'm thinking of tax optimization, of course). For example, I recently realized about a 15% gain on Walmart this way, as I continue to see no long-term value in it. I also sold off Iron Mountain, where I took a profit of over 25%, as I no longer saw much further upside given current valuation and other metrics. Not to mention stocks that fly out quietly by 100% and then their PE ratio is in the stars (NVIDIA, META, etc).
This question weighs on me too, then the stock will drop x% in a few days and I could jump back in with a bigger chunk of money. So I decided that companies where I really see some possible future growth I just hold and when they are on ATH I don't buy and rather look at other stocks, currently dividend stocks. Dividends come in every year and you don't have to worry about anything, I reinvest the divi that comes in.
For me, the key is to pass the time test if possible. After that, I either have set levels to sell or I go the opposite of DCA - gradually selling off the position. If you're not sure whether to hold, hold or sell now, then simply check with the company to see if it has room to grow, if anything has changed fundamentally, etc. If all is business as usual, I see no reason not to continue to go DCA.