Book Profit in Stock Market
Any individual who has invested in the stock market knows the importance of booking the profits. However, most of the investors, especially the first timers are unaware about the significance of profit booking in share market and unfortunately end up losing their hard-earned money. This happens mainly because of lack of knowledge or awareness among the investors. A comprehensive research work as well as the systematic approach is required when it comes to book profits in the share market.
What actually is Profit Booking in Share Market and Its Importance?
Profit booking essentially means to realize the profits from the shares that have been previously purchased during trading. Many people who buy the shares do not understand the importance of selling the shares or exiting from the market at the right time. As you all may know that the stock market is extremely volatile and the share prices keep on fluctuating all the time. In such a situation, it becomes an impossible task to get the right price of your shares when you sell them. This is where booking profit comes into the picture.
For example, suppose you hold 300 shares of the Company XYZ at a price of Rs 100. The current market price of the shares is Rs 150. You decide to sell the shares at the present market price of Rs 150. After selling the shares, you have actually booked the profit with a realization of Rs 50 per share.
Now, have you ever thought what if the prices of the shares you hold decreases? To make the picture clear, let’s reverse or change the situation. Suppose, you sell the 300 shares of the Company XYZ at the price of Rs 100 and after the some days, the prices of the shares plunge by Rs 70. When you purchase the same shares at Rs 70, then you have actually made a profit of Rs 30.
From the above examples, one thing is pretty much clear that the primary objective of most of the investors is to get better returns or profits from the stock market. For this purpose, it is imperative that the investors must keep a tab on the share prices and take the buying or selling decision when the suitable opportunity crops up. This can only be possible if profit booking on the investments is made at the right time.
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Importance of Booking Profits in the Share Market
Investors who have invested in the blue-chip stocks are not required to worry about the volatility in the market as they are assured of getting excellent returns irrespective of the market conditions. However, not many people may know that holding on to a particular stock for the longer period of time might result in the losses. Yes, it is agreed that staying invested for the longer period of time to accumulate wealth is a general rule followed by most of the people in the stock market, but without booking profits in a timely manner can turn out to be quite risky. Booking the profit is important if the shares become overvalued in your portfolio. Hence, in case of a long-term investment, you must book the profits regularly to safeguard yourself against market volatility and avoid losses or risks.
You will be really surprised to know that there are also some people who have an emotional connect with their shares just like they love their car, property or house and hence do not book profits. However, it is a wrong practice and by doing this they are doing more harm to themselves than good.
When to Book Profits in the Stock Market?
There are two main situations where the investors must not hesitate to book profits. These are as follows:
- Company News: If there is any positive news about the company like it has expanded to the other states or cities of India or launched a new product, then it goes on to create a positive sentiment about the company in the market. This leads to the excessive buying of shares among the investors, which may eventually rise in the prices of the shares. When the share prices are on the higher side, then the investors are able to meet their investment targets by selling the shares.
- Economic Data: The economic data of the country play a very important role in the case of the profit booking. Suppose, according to the economic data, the economy of the country is not performing well and the overall outlook is negative. The negative data will compel the investors to sell their shares at the current price prevailing in the market. When the investors are selling the shares at the current price, then by doing so, they are locking their gains and safeguarding themselves from any financial loss.
According to most of the experts, do not simply book the profits because the markets are performing well or are on the rise. Similarly, do not get panic when every other investor is selling the shares. You must keep your financial objectives (whether long-term or short-term) into the mind and also evaluate the performance of your shares irrespective of the market conditions. Furthermore, the experts also advise that a research work is required when it comes to selling the shares and book profits. Hence, time the market well when it comes to buying or selling the shares in the stock market, book profits in a well-planned manner and grow your wealth.
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The Closing Words…
It is important that the people investing in the stock market must be informative and carry out a comprehensive research work when it comes to profit booking. An investor can get the best returns on their investments by booking the profits in a well planned and timely manner. In fact, most of the expert research analysts or financial advisors are of the view that the profits must be booked on the small portions of the investments. This will benefit the investors in two ways, first they will be able to secure the profits on a certain part and secondly, the rest of the investments will continue to grow. All in all, the most important thing here is the timing. As discussed above, keeping the shares in your portfolio for the long period of time or getting emotionally attached with the shares must be avoided to secure the profits.