Stay Patient With Your Winners; Cut Laggards Loose Fast.(MAKING MONEY)(INVESTOR'S CORNER)

Byline: CRAIG SHAW

It's a natural instinct: cash in your winning stocks and give the losers time to recuperate.

It's also the path to poor returns. Just as strong stocks often get stronger, the weak tend to keep lagging. So do the opposite: sell your losers fast and hold your winners longer.

Say you buy two breakouts the same day. Both have strong fundamentals, and a market follow-through gave you the green light to invest. Both firms are leaders in top-ranked industry groups.

Both stocks act well at first. But after a few weeks, one is up 20%. The other gave back its gain and now sits 10% below its pivot point.

Many investors would snatch their profit on the winner and keep the underperformer. They'd figure they'll wait at least until it gets back to break-even. They may even try to make up the loss by boosting their position, or averaging down.

That can be disastrous. You have no guarantee that 10% loss won't balloon to 30% or 50%. Sooner or later, you'll be forced to sell at a substantial loss. Meanwhile, the 20% gain in your first stock may have swelled to a 50%, or even triple-digit, profit. By quitting without sell signals, you gave up the chance at a homer.