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Byline: DAVID SAITO-CHUNG
When you've found a great stock, the way to make a huge profit in it is to build your position on the way up.
Suppose a stock rises 200% from its breakout point. That gain is less meaningful if you also own 19 or 20 other stocks and all of these occupy the same size in your portfolio.
In a normal bull market, only a few stocks among thousands reap that kind of a gain. That's why it's smart to take advantage of the stock's power as much as you can.
As long as you know and practice sound sell rules, you can build that stake into a large one, then lock in those profits when it's time to sell.
Fund managers have rules governing the maximum size of one position in a portfolio. To reduce risk, they must diversify to some extent.
Individual investors, however, have more flexibility. If the stock has a high average daily volume, an individual can sell his or her entire position with ease, even if that single stock makes up half of the total portfolio or even more.