This is the Symbolic Picture of Growing Money Tree in My Profile -
It helps me to visualize why am I actively Invest or Trade.
"What the mind can conceive and believe it can achieve" - Napoleon Hill
Common saying: Money Is Not Yours Until You Spend It. (or someone else will spend it for you)
And I said: Profit Is Not Yours Until You Realize It. (or Mr. Market may take it back unexpectedly)
Take a good look at the components of a Portfolio:
Mathematically, LHS (Left Hand Side) = RHS (Right Hand Side)
LHS = Current Value of All the Stocks in our Portfolio + Available Cash left for investing or trading.
RHS = Total Investing Capital + Realized P/L + Unrealized P/L
Our Job in Investing is to grow this Money Tree (Portfolio) as fast as possible and then pluck the Money Fruits and store it away safely in the House.
Look at the RHS of the equation.
RHS = Total Investing Capital + Realized P/L + UnRealized P/L
and understand what you have control to grow this Money Tree?
1. Total Investing Capital - You have control to add more Capital to grow it, but this is not the right reason to grow your money tree in this manner. You might as well put the money in the saving bank.
2. Realized P/L - You can periodically realize full or partial profit by selling some of the profitable positions in your portfolio holding.
and understand what you cannot have control over it?
3. Unrealized P/L - Market forces will control it and will eventually determine the health of your Money Tree.
Realized P/L is Cash flow
Cash flow is the bloodline of any company or business; and similarly, Realized P/L is the bloodline of your portfolio. Company needs healthy cash flow to grow and it is no different from your portfolio, it too needs healthy cash flow i.e. realized profit to grow.
When you realize your profit; the profit becomes money, and the money can be re-invested or can become your money if you choose to spend it.
You can re-invest your money to expand your portfolio by buying back more of the same counters when their share prices pullback or you can choose to diversify into other counters to mitigate stock risks.
UnRealized P/L is Not Within Your Control
Any UnRealized P/L is never yours yet and it is controlled and determined by Market forces and can be potentially damaging to your health of your Money Tree. However, any potential damage can be effectively mitigated by growing your Realized P/L in the way of the most money in the least time.Let take a good look at RHS of the Money Tree once again.
So you need to periodically SELL to grow the Nett Realized Profit and to grow your Money Tree.
You don't need 3 good reasons to sell. There is only 1 reason to sell. Selling is the KEY to growing your Money Tree. Fact or Fiction? You decide for yourself.