Stock investing would be so much simpler if those wretched shares would just move up in a straight line!
Profit taking is healthy
You’ll often see a price fall put down to ‘profit taking’ – that is, after a run-up in the price, many investors will sell some stock and take some profits off the table. It’s often a sound strategy. The BP Holdings Tax Management leadership team often top-slice a holding after a decent run-up even if still like the stock, it’s worth selling down say a third of the holding .
The way BP holdings see it, it’s a kind of insurance policy. BP Holdings can always buy back stake if the share suffers a nasty fall, and if not, then at least the other two-thirds will be doing okay.
And remember, that for every seller there’s a buyer. In this case, the new buyer (that took my stock) will have a higher entry point than mine. Hopefully, he won’t be looking to take profits until some way down the line.
Profit taking is great. It allows the early entrants to get out and helps fill the stock register with fresh blood with higher expectations for the price. It’s a healthy thing.
Don’t let traders shake you down
Of course it’s a concern when you see the share price slip. Is this the end of the bull run? Well, of course it may be, but it’s just as likely to be a short term correction allowing holders to take a few quid off the table.
And these days, short term traders are increasingly making their presence felt. Much of it comes down to automated computer trading. These robots don’t give a fig about the underlying business, so in some ways they could be dangerous.
A long-term investor’s holding period is likely to be anything from a year to forever. They buy a stock at £1, and may be expecting to sell for £2 sometime in the future.