If You Don't Set a Target, Your Paper Profits Will Disappear in Thin Air: Utsav Bajracharya

Article by Utsav Bajracharya.

“An idiot with a plan can beat a genius without a plan.”
Warren Buffett

The stock market is breaking records day by day. The NEPSE index is reaching new highs in the current bull market. But the main question is, are you actually making profits? Do you have a target? Chances are high that you have not set a target and don’t know when to sell your stock. The market may reach new highs daily but if we don’t set a target and sell our stocks we may miss out on profits. If the market falls tomorrow we may not earn what we imagined we would. So we must all set targets for the stock we buy.

Before buying a stock, it is important to have a clear picture in your mind about when you are going to sell your stock, at what price level, or at what percentage of profit.

Investors and traders often say it easy to enter the market but difficult to exit it. (Chirna Sajilo Cha Tara Niskana Garo). And this is even harder during bull markets. Often times what happens is you sell your stock today for 1000 and a week after it reaches 1100. Then we have regret in our minds and next time while selling a stock we become even more confused and there is an element of greed. But one must not forget the same stock could also come down to 900 a week later, so having a target and sticking to it is important. And if your target is to sell at 1000, do sell it when it reaches that price level and book your profits. Do not be bugged about what will happen later. This is investor discipline and this investment discipline will pay you a lot of dividends in the future.

The stock market has been rising over the past year, a lot of new investors have entered the market during this time and have bought stocks. But many have no idea when to sell them. When the value of your stock rises you may think you have made a profit but it's not actual profit until you sell your stock. To sell a stock you need to have a target and a vision about when to sell it. In the previous bull market as well, many investors bought stocks, the value of their stocks increased too but they couldn’t actually make a profit as they didn’t know when to sell. The market that had made a high of 1881 fell down to the 1100 range. Instead of profits, losses were incurred. So, let us all learn from this.

Thus, always have a target in mind while you buy a stock. Today, the market is rising but remember: tomorrow it may not and the day after it may start falling. And you may incur a loss instead. Markets do not always rise (trees don’t grow to the sky) and we often forget this during bull markets.

If you take one learning from my article, it is this: set a target, have a plan, and learn to book profits.

Bajracharya is a value investor and a CFA Level 1 candidate.
Connect with him via Twitter @utsav_bajra.