Buy Low, Sell High

Deciding when to buy or sell your investments is a risky business! In fact it's not unlike a gay relationship. It can be difficult deciding whether you should declare your love and even more tricky deciding if a turbulent partnership is worth continuing!

When a couple fall in love, the sun shines when it rains and even the biggest faults and blemishes are ignored. But beware, love is blind especially when it comes to investments. How do you decide when you've made enough? And where do you draw the line under any losses?

Having a pre-set agreement should not deter you from doing your homework. When investing money you should avoid letting your heart rule your head. It's always a good idea to adopt a "Honeymoon" period before getting serious. You should investigate an investment opportunity to obtain as much detail about the holding as you possible can. This investigation takes the form of reading company accounts, product literature and press reports. You'll probably dig around in order to uncover past history, find out about former lovers and whether past and future behaviour is likely to be acceptable to your moral standards. You'll be making an assessment of the likelihood of you remaining together in perfect harmony.

No matter how careful you are you can still make a mistake. If things get rocky you may carry on hoping things will get better, or you may be the sort to make a clean break. The most common answer is to separate. If your weakness for good looks ends up ruling your head and love dies quickly, what precautions can you take beforehand?

To save all the heart searching and tough decisions you should have a pre-arranged agreement! It's a little like deciding who gets the Diana Ross CDs before things turn ugly.

Here's how it works…

Once you've decided on your investment, you'll need to pay a dowry in order to own it. This normally takes the form of buying a gift sufficient to impress or investment in a new double bed, whichever, it means a financial commitment.

This represents the amount you commit to share and the price at which you buy it. This is the figure that all future returns will be judged upon. If this price increases and grows you're both likely to remain attached. If the value starts to wither, your chances of buying into the arrangement more will seriously be reduced. You also will constantly be assessing whether you should get out before your circumstances turn to disaster.

The day that you invest you should set a figure that you would be unhappy losing. Say 15-20% for reliable investments, with a decent reputation for gentle and steady growth, 25-35% for more volatile prospects. These margins remain constant and move with the current price.

Example

Pink Company is a steady, well run gay business with steadily increasing profits. If you decide to buy shares in Pink Co. at £1.00 you are likely to set your loss marker at 20%. If the share price falls to 80p then you sell!

Let's be optimistic, if the price goes up to £2.00 it shows just how good a judge you are. Remember, the 20% marker still applies! If the share falls to £1.60 at any point you would sell! This method needs constant monitoring and there will be times that you'll kick yourself having sold, when afterwards the value starts to climb again.

When you purchase your shares in Pink Co. you should also decide to set an upper marker. This will be the point that you decide to sell half of your holding if you make excessive profits. You shouldn't be greedy, set your figure at say 50% from the purchase price.

In the scenario above this would mean you would have sold half of your Pink Co. shares once they hit £1.50.

Running a marker system over your investments introduces discipline to your affair, as we all know discipline is one of the requirements of any long-term relationship. Of course there may be exceptions to the rule and common sense sometimes should prevail. You should constantly assess if original markers were realistic, as they may need altering due to significant changes within the company. This could take the form of a change in the business plan or a major take-over or merger and could alter the risk profile of your holdings.

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