Take your profits?

"I bought XYZ stock and I've already gained 50% should I sell it". This is a question that comes up very often. If I had sold my stocks every time they gained a few dozen points, I would have missed out on capital gains that amount to hundreds of points. And there are much worse examples than that. Just think of Apple or Microsoft, which are counted in tens of thousands of percent.

Selling with the added value in percent as the only reference is like flirting on the Internet. We only rely on appearances, without trying to understand reality. Let's take our fictitious title XYZ again, and look in more detail:

By selling the stock because it has gained 50%, we are getting rid of a security that has better fundamentals than when we bought it. Earnings per share (EPS) have doubled, the dividend has increased by 87%, the distribution ratio decreased by 7%, the price-to-earnings (P/E) ratio decreased by 25% and the dividend yield increased by 24%.

Of course, there is no guarantee that this situation will not continue in the future. But even if earnings stagnate or decline slightly, the stock will still be more attractive than when it was initially purchased. And since the payout ratio remains prudent, the dividend can still be paid, or even increased if fundamentals deteriorate.

To put all the chances on your side, it is also advisable to focus on defensive stocks, which are not very sensitive to the economic situation. They are found in sectors such as food, pharmaceuticals, tobacco, personal care, distribution, clothing and real estate for example. It is clear that in sectors that are very exposed to economic upheavals, such as aviation, automobiles and finance, the fundamentals can deteriorate very quickly, sometimes even sustainably. In this case, profit-taking is more easily justified.