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Smart Profit Booking Approaches: When And How To Book Profits?

Have you ever watched fireworks soar into the sky, light up the night, and then…poof? Disappear. Investing can feel a bit like that. You watch your profits climb, feeling excited, but then worry creeps in: “When should I let go and grab those gains before they vanish?” That’s where profit booking comes in. It’s about knowing when to take your winnings and run without letting greed or fear ruin the party.

We will delve into different profit booking strategies to help you secure those gains and sleep soundly knowing you made the most of your investments.

Gradual Exposure Adjustment 

The Gradual Exposure Adjustment approach involves resisting the urge to sell off all equity holdings during market highs. Instead, maintaining a minimum equity allocation, say 50-70%, ensures continued participation in potential market rebounds. The strategy emphasizes sticking to a pre-decided comfort zone and only tactically adjusting equity exposure based on valuations.

Example: If an investor’s comfort zone is between 50-70%, they may strategically adjust their equity allocation within this range based on market conditions, preventing an all-or-nothing approach.

Valuation-Driven Decision Making 

Focusing on valuations rather than percentage profits is another strategy. Selling decisions should be based on indicators like PE ratio, PB ratio, and other fundamental factors. The example highlights the importance of understanding the valuation of stock before deciding to sell based on percentage profits alone.

Example: Selling a stock that has appreciated by 33% may seem attractive. However, considering the change in PE ratio from purchase to current levels can provide a more informed perspective on whether to sell.

Confidence-Based Selling 

The Confidence-Based Selling strategy advises selling low-conviction bets before high-conviction ones. High-conviction investments are thoroughly researched, and the thesis remains intact, while low-conviction bets may lack in-depth analysis or be based on market trends or tips.

Example: Selling stocks acquired based on market trends or tips during an all-time high provides an opportunity to retain investments with strong fundamental convictions.

Portfolio Strengthening 

This strategy involves using an all-time-high market situation to eliminate weaker stocks and loss-making positions. The focus is on strengthening the portfolio by removing underperforming assets.

Example: Selling weaker midcap and small-cap stocks that have seen appreciation during a market high, while also taking advantage of tax loss harvesting to offset capital gains.

Systematic Profit Realization 

Selling in smaller chunks using a systematic withdrawal plan (SWP) helps mitigate timing risks. This approach allows investors to exit gradually over a defined period, reducing the impact of market fluctuations.

Example: Implementing a 6-month SWP to sell a portion of equity holdings, ensuring flexibility to cancel if the market experiences a sudden fall.

Strategic Fund Deployment 

Having a redeployment plan is crucial before selling any stocks. This involves deciding how to reinvest the proceeds from profit booking, whether in rebalancing, meeting financial goals, or investing in preferred companies.

Example: Reinvesting profit proceeds into a wish list of well-researched companies with reasonable valuations.

Balanced Portfolio Optimisation 

Balanced Portfolio Optimisation involves adjusting the portfolio’s asset allocation back to its original plan. By selling equities at an all-time high and reinvesting in non-equity instruments, investors can maintain a balanced and risk-adjusted portfolio.

Example: Selling a portion of overvalued equities and reallocating the funds to undervalued assets through a rebalancing strategy.


Implementing these Smart Profit Booking Approaches requires a thoughtful and strategic approach. By considering factors such as gradual exposure adjustment, valuation-driven decision-making, and confidence-based selling, investors can navigate market highs effectively. These strategies aim to optimize returns while managing risks, offering a comprehensive guide to making informed decisions during profit booking.

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