When do you sell?

One month is a long time in the COVID-19 world. Back when the ASX share market was dropping fast Under the Radar Report's advice to small cap investors was to buy quality ASX shares in small parcels and that has proven to be the right strategy.

In our own accounts we put varying amounts of money to work, between 20-50% of our funds employed. In some cases we got the timing right. I’m talking about stocks that include Kogan (KGN), Kathmandu (KMD) and Infomedia (IFM). The question is what to do now?

A good lead for investors is the companies themselves. The big COVID-19 trend we are seeing in the corporate sector is that companies, big and small, continue to raise cash, whether they’re in distress, or because they’re being opportunistic, like a small cap that we cover, the car parts publisher Infomedia. While this helps companies in the short-term, it also sends a message to investors: you should be using opportunities to take profits on stocks where you can find them.

Our take profits recommendations have been on stocks that climbed between 30% and 65% in the past month. Seven West Media is up 15-20% over that period and we have chosen to downgrade to hold.

A rule of thumb is that if your profit exceeds 20% it’s worth considering taking profits.  Try getting an index linked ETF return in that ball park.

The general principle at the moment is that we all need cash and it’s a market in which there is high volatility and trading opportunities as result. You’ve got to be in it to win it.