What To Do With Your Penny Stock Earnings
While trading in penny stocks, at a juncture when you have a success, and make a big gain, you may immediately think of cashing out your stocks, selling them to enjoy the profits from your investment. There are bound to be things you want to do with the money, to buy things, go on a vacation, or whatever way you have chosen to enjoy the profits from your transactions. However, you must remember that taking the money off of the table, especially in the middle of a great deal like buying a house or a new car, may not be the wisest thing to do. On the other hand, you have been hoping and planning to buy such things from the results of your investments and you also know that letting all your money ride is a risk, you may actually end up losing it all if the stock were to dive. It is difficult to know what course of action to follow to best enjoy as well as protect your profits.
Wise investors have, over time, developed strategies of partially selling their stock, usually about half, when the stock value increases by 100%. Following this policy will give you the continuing benefit of enjoying all potential future increases, while at the same time it protects the original value of your investment. In case there is some other investment you find interesting, you can follow what is called the one-third approach. You would then leave one third of your investment in the original stock, cashing out one third, and investing one third in the new stock. Successful investors, particularly in the field of penny stocks, have used this method extensively.
Although a big win may leave you hungry for more, it is not usually a good idea to try again immediately. Take a little time off before you put your gains back in the market. Better be ruled by your head than by your emotions, particularly in the case of money. Investing needs to be approached with reason, and it is better to be bored than to ride an emotional roller coaster looking for an adrenaline high. Vegas casinos have a term for this phenomenon of people risking more with their winnings than they would ever dare to with their own money. They call it ‘playing with house money’. These players feel that since the money isn’t theirs to begin with, losing it would be no big loss.
This mindset sometimes takes over in stock market investing as well. Rather than viewing profits as their money, investors see it as something to play with, and are therefore more willing to risk what they would normally pass on, all in the hopes of a repeat of the big win. Rather than conducting the hours of research necessary, they invest foolishly and usually lose it quickly. Taking time between investments is a good strategy, which will let you keep your head and put money in your pocket.
Cashing out after a big gain is a good idea. This works especially well if you have confidence in the stock’s potential, because it lets you sell high and then buy back low after the rush is over, making another little profit. It is better to sell on the way up, than to wait for the top. It is almost impossible to predict at what point the stock will peak. Once you make a decent profit, sell.