Taking Profits to Reduce Position Size

One of the more nuanced selling strategies investors grapple with is what’s often called “selling to the sleeping point.” The idea is simple: take enough profit from a position so that you can sleep comfortably at night, without the constant worry that one stock could undermine your entire portfolio.

Realising Your Initial Stake

A common question is whether it’s sensible to sell enough shares to recoup your initial capital, especially when a stock has performed very well. Doing so frees up funds to reinvest elsewhere, while reducing the fear of losing your original stake.

This is a perfectly valid approach, particularly for those holding multi-baggers — shares that double, triple, or more. You don’t have to sell out entirely; slicing a portion can both lock in profits and release capital for other opportunities.

A Model Portfolio Example

Imagine an equally weighted £20,000 portfolio from 2015, with £2,000 invested in 10 high-quality growth stocks. Fast forward eight years:

• Games Workshop

  has dramatically outperformed and now makes up 33% of the portfolio.

• Apple and Microsoft are also in the mix, but Games Workshop has been the star performer.

The problem? The portfolio is no longer well-balanced. One stock dominates, especially within the consumer cyclical sector. This overexposure means that most cyclical exposure is tied to one company.

As a result, a single unexpected profit warning or external shock at Games Workshop could drag down the entire portfolio. In this case, trimming Games Workshop and reinvesting elsewhere would reduce concentration risk, while still retaining upside exposure.

The Volatility of Multi-Baggers

Our research on multi-baggers has shown just how volatile these journeys can be:

• The average decline during multibagger growth phases was

  62% (including pandemic-related selloffs).

• Even excluding the pandemic, the average drawdown was 43%.

Now imagine that in our model portfolio:Games Workshop is 33% of the portfolio.

• A 43% decline in that stock would be a 15% drawdown on the entire portfolio.

The lesson is clear: the bigger a position becomes, the more it can dominate both upside and downside. You don’t have to liquidate your whole position. Instead, I like to think of it like a good bottle of wine: it’s maturing, it’s gaining value, but every now and then it’s wise to take a sip.

• Trim oversized positions when they begin to dominate your portfolio.

• Rebalance sector exposure to avoid hidden concentration risks.

• Define your sleeping point — the level of exposure at which you feel comfortable holding through inevitable volatility.

This point will differ for every investor. Some thrive with concentrated bets; others prefer a steadier ride. The key is to stay invested in a way that lets you sleep well at night and you are putting yourself in a position to avoid damaging losses and maintain a winning portfolio.

Our final article in our series on When to Sell looks at the idea of selling the losers in your portfolio.