This conventional wisdom pervades much of the financial industry. As the old saying goes, “it’s never wrong to take a profit”. A client is unlikely to be unhappy or indeed notice if you sell a stock that subsequently goes up significantly. The loss of foregone upside is not captured in performance data. Perhaps it should be.
On the other hand, if an investment manager continues to hold the stock in question and its price starts to fall, the drop will be clearly visible in performance data. The manager should expect to be asked, if not chastised, about it. That is why, from the investment manager’s point of view, it is never wrong to take a profit.
What about the client? For the client, equity investing is asymmetric — the upside of not selling is nearly unlimited, while the downside is naturally capped. For the client it can be very wrong to take a profit. Sadly, too few fund managers try to get investment right for investors. Most conventions and practices exist to serve, protect and enrich investment managers’ interests.
In fact, it is often not just wrong to take a profit, but it can be the worst possible mistake.
https://www.ft.com/content/f8f8b067-e663-4afe-90dd-6a243929af86
https://archive.is/rBE12
Submitted March 01, 2021 at 05:31AM by blorg https://ift.tt/2O5NXnz
