If the First Principle to profitable investing is to get rid of your losers early, the Second Principle is to hold on to your winners.

You may be surprised to know even the best investors, the very few who manage eye catching returns year after year, get a substantial number of their trades wrong. In any period, the breakdown of a 100 trades of a successful professional investor might look like this -
40 trades - small losses (closed out quickly)
20 trades - break even (no profit or loss)
30 trades - small profits - enough to make up for the 40 losses and maybe leave a bit over
5 - 7 trades - good profits - high double digits
3 - 5 trades - great profits - price of the chosen stock doubles / triples or more

As you can see, almost all the year's profit comes from maybe five or six trades out of a hundred. Time and again, letting winners run is what makes all the difference.


Second Principle - Part 2