Even I think about this.
There is nothing wrong with booking profits occasionally, the ultimate goal for anyone in the market is wealth maximization, and each has their own path for getting there.
I believe most investors would actually be utilising the LTCG exemption of ₹1.25L (₹1L earlier) by selling some part of their investment every year.
So, if u can book profits and avoid tax at the same time, why miss it …
Investing for the long term and leaving those investments untouched is done with the hope that, in the long run the compounding effect will provide better returns and maximize wealth. This is especially true when the portfolio size grows bigger.
Staying invested is a great thing, but it requires a lot of conviction and patience to not get swayed by the ups and downs.
By staying invested, you are allowing the existing gains to compound, without losing anything to tax.
But then, there is the reality, the impulse to book profit, especially when you hold a stock which has delivered good returns, but is starting to fall, it is normal to want to sell before it falls further, as sometimes, staying invested with a stock that is falling could potentially nullify the gains made during the year.
Imagine a situation where you Invest in a stock at the beginning of the year, and the stock ends the year at the same price at which the investment was made, this means that the 1 yr return is NIL.
However, during the year the stock might have certainly risen and fallen multiple times. This is where selling occasionally and booking profits makes sense.
Now, If someone stayed invested in this stock, they would have made nothing for the year. On the other hand, if someone was able to sell during the rise, they would have made some return on their investment, and could have reinvested elsewhere.
Obviously all of this looks clear only in hindsight. We can’t always time the market (knowing when to sell or buy).
Also there is no guarantee that the stocks in which we reinvest, will perform well.
What if it starts to fall, this could easily negate the gains made earlier, and it is back to square 1.
I think the key to all this is contentment. If u r okay with the returns already made by the stock and don’t want to get greedy, u can always sell it and reinvest it elsewhere.
It is alright to lose out on an uncertain future gain, rather than losing the gains already made.