3 Reasons to Make a Short Term Profit from Stocks

Making short term profits from stocks are not emphasized enough. Profitability is the only true measurement of success when you are buying and selling stocks. The idea of buying a stock and holding it for a long period of time to make a profit is foolish. Yes, I said foolish. The reason this idea is so foolish is because you have passed up profits 10 times during your holding period. There are three reasons to make a short term profit on your stock investments.

Needs

When you purchase stock and you are able to sell it for more than you've paid for it, take your profit and run. How much profit you decide to make before you sell the stock is a personal decision. There is no right or wrong answer. If you are satisfied with a $100 profit, then it's your prerogative to sell and take your profit. This won't sound like a bad idea after the stock's price drops and now you have lost some money. No one knows how badly you need the money and no one can tell you you're wrong when you decide to sell.

Ideally, you would like to hold the stock for a year so that you can pay the long term capital gain rate. But sometimes life and circumstances don't make this possible. It's better to sell at a profit and take care of your needs.

Diversification

You will have additional money to invest when you sell stocks at a profit. You can now take the money you've made and purchase a new stock. You no longer have to find additional money of your own in order to invest.

You can purchase a company stock in a different industry. As an example, if you initially bought a company that produced solar panels, you can now invest in a company that produces medical supplies. It's a good idea to invest in more than one industry.

Risk Free Portfolio

The first time you sell for a profit you can choose to remove your initial investment. For instance, if you spent $500 to invest in the stock market and that one stock makes a $1,000 profit, you can take your initial $500 investment out and reinvest the remaining $500. Now, you have none of your own money invested in stocks. You will now own 2 or more stocks and your portfolio is risk free.

Now, you might ask, how long does it take an investor to make that much profit? Of course, the correct answer to that question depends on the stock you choose to invest in. There is however another correct answer. That is, it will depend on how many shares you purchase.

If you purchase 100 shares and the price increases $1, you have only made $100. On the other hand, if you purchase 5,000 shares and that same stock moves $1 you have made $5,000 dollars. You will make more money when you own a larger quantity of stock shares.

There are too many unknown variables that adversely affect a stock's price to hold them for years. For example, no one predicted this current bank loan freeze. The long term growth potential of a company is secondary when your objective is to make money from the stock market by settling on short term gains. This is being said to help you overcome your fear of investing in the stock market. You can afford to wait a year or longer for stocks values to increase, once you have created a risk free portfolio and you have no immediate needs.