What Do You Do When A Stock Goes Way Up?

A real-world example

If all goes as planned, most of our Portfolio stocks will have a great few years and make us all a ton of money. But big, fast moves, while fun, require some thought and maybe action, so it’s wise to prepare for them.

Things to consider when a stock you own doubles:

• Is it time to lighten up? One common response to a stock spiking is to take the original investment off the table and let the rest (aka “house money”) ride.

• Prepare for a big financing that whacks the stock. This is virtually inevitable since managers smart enough to engineer a share price doubling are also smart enough to use the higher price to raise capital for their year-ahead expansion plans. It can be shocking if you’re not expecting it — which is a reason to take some money off the table in anticipation (see the previous point).

Real-World Example

The above could have been written anytime. But a dramatic and painful example just happened this morning, so now, while the wound is fresh, seems appropriate.