The Oxford Club has been helping investors grow and safeguard their wealth for almost 20 years, ever since William Bonner founded The Passport Club in 1989. It’s now grown to over 157,000 members in 130 countries. Bonner believed investors could gain an edge in the financial markets by learning of special investing opportunities through networking with each other outside the mainstream business press.
Recently The Oxford Club published an important article detailing the four investing foundations of their success. The second principle all investors need to understand and adhere to is the importance of having an exit strategy. Without that, you are at the mercy of your emotions.
It’s important to know in advance how far down the stock or other asset may go down before it goes up as you expect, so you don’t sell it before it has a chance to prove you right. Because sometimes stocks keep going down, though, it’s also important to know in advance that you will sell at a certain low that proves the stock is really not the bargain you believed when you bought it. So, part of your exit strategy is knowing what to do with a loser.
The converse of that is knowing what to do with a winner. You thought a stock would double in price, and you were right. It has. Now what? Do you sell? Or wait for it to double again. Warren Buffett says his favorite holding time is forever, so as long as he is happy with an investment, he keeps it.
Many investors, though want to take profits. However, then you have to factor in the capital gains taxes you must pay to the government. And do you have another, better stock to buy? What are this stock’s long-term prospects? Has it peaked? Or will it keep growing indefinitely?