Editor's note: Occasionally, we come across ideas that we simply have to forward to you. This one comes courtesy of our friends at Port Phillip Publishing. |
Dear Reader, Ever sold a stock, and kicked yourself because it kept going up? It happens to the best of us. At Australian Small-Cap Investigator, it happened this year with Afterpay. We tipped the stock way back in 2016 when it was around $1.30. At the time of writing, it’s about 5,000% higher. But we recommended our readers take profits back in February. We thought the 2,324% gain at the time was stupendous. It turns out we hit the eject button way too early. At the time, we reasoned Afterpay had done all we’d asked of it. The gain we sold for, 2,324%, is still one for the record books. Problem is…Afterpay just kept on rising this year after we exited. Our reasoning at the time was sound. Afterpay had become a darling of the ASX since we tipped it as a nobody fintech. It had made us a tremendous gain for a stock held for just over three and a half years. We figured back in February 2020 the value of Afterpay was pretty much priced in. And it was time to realise those profits and exit the position. We even warned readers ‘the stock may continue higher’. However, we didn’t anticipate it almost doubling again THIS YEAR! YEESH! But what we didn’t…COULDN’T, really…anticipate was the boom in online sales due to this new (in February) COVID thing. A boom Afterpay has mercilessly exploited ever since we exited the stock. Look, these things happen in small-cap investing. Trust me: A too-early exit for a gain in the thousands of per cent is WAY better than staying in a stock that loses you money. But it doesn’t mean you can’t learn lessons from it. There’s knowledge to be gained here. Exit strategies are almost more important than picking what stocks to buy. Taking profits prematurely is annoying as hell, especially in this instance. But we can tell you from experience it’s nowhere near as annoying as watching your profits blow away like sand in the wind because you held on too long…because you got emotionally attached to a trade that suddenly turns on you. That happens a LOT with small-caps. For months on end, you’re winning. Then suddenly you’re pulling your hair and watching the stock plunge. Stop orders are a useful tool we use to stem losses (because there WILL be losses…). At Australian Small-Cap Investigator, we’ll give you guidelines on what we want out of a trade…the potential gains, and how long we want to be in that trade. And, occasionally, we’ll take gains off the table in increments. So you can bank profits in this stock picker’s market…but also STAY IN THE WINNING TRADE. But, ultimately, the exit strategy will be up to you. I’m sure we have more than a few Australian Small-Cap Investigator readers who refused to sell and are still in Afterpay today. And fair play to them! Sometimes, something truly special happens with a small-cap. To read about our five top picks for 2021, click here. Regards, James Woodburn,
Group Publisher | 