When To Exit A Momentum Stock

Momentum stocks often continue to go higher despite being on the expensive side. But it’s important to know when to cash out if you want to maximise your profits before the high fades.

- Simon Brown

investing is all about strategy. At the top level there is an overarching strategy that guides all your selections. For example, my overarching strategy is very much focused on a global growing middle class. Driven by improving economic and political conditions, more people are moving up into the middle class and spending accordingly, hence driving the profits of companies in the consumer space.

You will also see other sectors responding, as was the case with the commodity boom of the first decade of the 2000s, which was driven by demand (mostly from China) for infrastructure for the increasing middle class.

But as you move down from your overarching strategy, you have to make more decisions as to how to structure your portfolio.

Firstly, how much do you invest in exchange-traded funds (ETFs)? How much in large-cap, quality stocks, which you will hold for decades? How much in potentially small and mid-cap stocks? And how much into trading (if at all)? My portfolio is split 50%/30%/10%/10% into the categories as above.