Explain taking profit for a maffs dunce
Explain taking profit for a maffs dunce
Author
Discussion

OIC

Original Poster:

197 posts

11 months

I buy some shares.

They are a bit excitable and bounce around a lot.

At what point, mathematically, does it become more sensible to just let them run, rather than keep taking a % profit off the top .

I'm playing safe by skimming when they go high, but I'm losing the compounding profit when they unexpectedly double.

Equally, by having a bit out to cash I'm not going to lose my entire initial investment if they go down a lot and stay down for months.

Let's try not to discuss peak selling and dip buying back at this point 'cos I really can't handle that in the same discussion, and it's likely to complicate the issue of profit taking mathematical analysis.


Countdown

45,510 posts

214 months

It depends smile

trickywoo

13,255 posts

248 months

There is no profit taking mathematical analysis for a variable price equity.

Generally if you think it’s worth holding you do that and if you don’t you sell it.

Austin Prefect

1,207 posts

10 months


Not a mathematical test, but f you didn't already own them, would you buy at the current price?

Ari

19,722 posts

233 months

What you're basically asking is 'what will the value of my shares do in the future?'

If only we knew. smile


Simpo Two

89,834 posts

283 months

Tuesday
quotequote all
Ari said:
What you're basically asking is 'what will the value of my shares do in the future?'

If only we knew. smile
That's easy. It will go up and down nuts

If the OP finds shares in individual companies too lively he might like to consider funds instead, and also decide if he's investing (medium-long term) or trading (short term punt).

redstar1

219 posts

9 months

Tuesday
quotequote all
I can sell you a digital monkey if you want. You can ride that bad boy to the moon.

Jon39

14,032 posts

161 months

Tuesday
quotequote all

OIC said:
I buy some shares.
They are a bit excitable and bounce around a lot.
At what point, mathematically, does it become more sensible to just let them run, rather than keep taking a % profit off the top .
I'm playing safe by skimming when they go high, but I'm losing the compounding profit when they unexpectedly double.
Equally, by having a bit out to cash I'm not going to lose my entire initial investment if they go down a lot and stay down for months.
Let's try not to discuss peak selling and dip buying back at this point 'cos I really can't handle that in the same discussion, and it's likely to complicate the issue of profit taking mathematical analysis.

Most of us start in this way, but gradually realise, that it is not the best way to invest seriously.

Concentrating only on the share price, dancing in /out and skimming can produce profits, but eventually you will want a better approach. Leaving your investment to compound and only occasionally needing to make decisions.

Study business sectors and companies.
Some are naturally cyclical, Oil and Gas is one of my favourites, because the majors have proved they know how to cope with fluctuations and even continue dividend payments, whereas others (defensives) supply products and services that are always in steady demand. You obviously need some defensives during recessions. It might seem strange, but if your total portfolio falls less than a market average during a crash, that counts as winning.

You will be more informed about where to allocate your capital and practical experience will then help you.
Forget get-rich-quick. Compounding works well with the patient-steady approach.
Never become a forced seller, by using money that you may require at short notice.

Hope these points might be of help to you.
Good luck.


OIC

Original Poster:

197 posts

11 months

Tuesday
quotequote all
Thanks to all so far.

I sort of feel that the issue of single stock price volatility maths should be amenable to a simple Excel sheet.

One column set to map leaving everything alone.

One column set to map always taking profit over 5%.

Data input the relevant stock market ups and downs from the last 5 years maybe.

Sadly I'm not good enough at Excel to produce such a mapping model, but I'm sure they exist.

Agree that smoothing variation out by investing in funds or established essentials (food, energy, weapons etc) is more sensible, but a small % invested in volatile singles can be fun.

NowWatchThisDrive

1,098 posts

122 months

Tuesday
quotequote all
It's perhaps a bit much to try and distil into a single post (or even thread), but have a look at something called the Kelly Criterion and see what you can make of that.

Simpo Two

89,834 posts

283 months

Tuesday
quotequote all
OIC said:
Thanks to all so far.

I sort of feel that the issue of single stock price volatility maths should be amenable to a simple Excel sheet.

One column set to map leaving everything alone.

One column set to map always taking profit over 5%.

Data input the relevant stock market ups and downs from the last 5 years maybe.

Sadly I'm not good enough at Excel to produce such a mapping model, but I'm sure they exist.

Agree that smoothing variation out by investing in funds or established essentials (food, energy, weapons etc) is more sensible, but a small % invested in volatile singles can be fun.
Assuming the share price is going to increase, then the more you take out the less there is to grow. So then you need to take the proceeds and find the next home for them... at which point you might think 'I could have left it where it was and not have the bother'!

If this is just small amounts for fun, then yes, experiment with different methods and see what works smile

sideways sid

1,432 posts

233 months

Tuesday
quotequote all
OIC said:
At what point, mathematically, does it become more sensible to just let them run, rather than keep taking a % profit off the top .
Assuming that you're reinvesting proceeds rather than spending them, the answer is when the expected risk-adjusted return of an alternative investment exceeds the expected risk-adjusted return of what you're considering selling.

That requires a view on valuation and ability to assess what is under-valued or over-valued relative to an alternative investment, which is not something to cover here in a sentence.

Perhaps a better way to comprehend it is to trim those that are underperforming and reinvest in something with better prospects, leaving your winners to run.

Edited by sideways sid on Wednesday 15th October 12:59

Jon39

14,032 posts

161 months

Tuesday
quotequote all

OIC said:
Thanks to all so far.

I sort of feel that the issue of single stock price volatility maths should be amenable to a simple Excel sheet.

One column set to map leaving everything alone.
One column set to map always taking profit over 5%.
Data input the relevant stock market ups and downs from the last 5 years maybe.
Sadly I'm not good enough at Excel to produce such a mapping model, but I'm sure they exist.

Agree that smoothing variation out by investing in funds or established essentials (food, energy, weapons etc) is more sensible, but a small % invested in volatile singles can be fun.

You are quite correct. A spreadsheet is all that you need. I created mine in 1988 and the same spreadsheet has fulfilled requirements ever since.

Forget singles though, leave that to tennis players.
If you want to go the direct holdings stategy, then gradually build up to about 25 holdings. Within your selection there will be a few 'volatile singles can be fun', but after your initial selection, don't constantly fret over every share price. No one can predict how each of your individual holdings will perform in any particular year.
The important aspect is keep it simple and only watch three individual percentage changes from 1 January each year.
Your fund total; dividends and your benchmark.

Here is an example of the charts, which are automatically produced weekly by the spreadsheet.
Two or three years of these charts and it will be very clear to you, how you are getting on.