As I go along with my trading, I learn and I am bringing my knowledge and perception back to you. Make your own conclusions and take my opinion only as one indication.

I had one doubt ever since I got some grip of things in online share trading. That doubt was, whether booking profits and buying those scrips again at their lower levels was the right strategy to follow, or as I have always believed in, waiting for the long term, without touching my positions is the right thing to do. 

Short term - sentiments plays; long term - corporate performance pays.
Dec 06 - Feb 07 is a period when I have seen a lot of volatility and downtrend in the markets and sometimes weeks of incessant downward movements. I would like to take an example of real estate major Unitech, where I have a sizable investment. I have seen it appreciating and  reaching levels of unrealised 50% profits for me. However, following my policy of long term stay and having tremendous belief in a real estate major like Unitech, in bringing wealth, I waited. 

However, markets were quickly and heavily thrashed and I came to a situation where all my gains in Unitech were lost and entered -ve territory. 

Here, my thoughts are; if I had at the point when I saw the greatest gains, either sold part and waited on cash to reenter Unitech, or as another strategy entered into a different scrip with the money I earned from the selling, I am very likely to have achieved better position overall.

Short term Players may book profit. Long termers, does it matter?
In a situation like in May 06 where the whole market was coming down together and sharply, a profit booking strategy does hardly exist unless something is done at the beginning of the fall. However, when the volatility is present and when some sectors / scrips earn and some loose alternating, profit booking is a strategy to follow. 

However, there is another side to the question, 'whether to book profits or not'. That is, your share price appreciates well for a particular scrip so that you decide to sell it. Your enter a new stock or the same stock when their prices are down. While doing this, you gave a broker commission selling the original stock, gave a commission while buying a new scrip. Also, what if the new one des not do well or appreciate as much as the old one would have?

My strategy is one of identifying performing companies.
Hence, the question as to whether 'to book profits or not' is a rather tough one. I will tell you my strategy rather than answering the tough question. That is, 'identify good companies - buy, hold and accumulate' on dips. Now, when I get a feeling that the scrip or sector is paralysed (for a period of few months may be), I exit the scrip.

There is a venerable Rakesh Jhunjunwala strategy where you enter into a scrip after finding its value and stay for years. 10 - 15 years. No profit booking and instead 'company watching' as I explained is known to be his idea. There is also that sect of investors where they do not have that much time or patience for not more than 2 - 5 years. For that group, profit booking may be a strategy they choose to follow, whether that's the optimum thing to do or not, I still have my doubts. 

Selling - not recommended.
I have seen few companies that cease to appreciate in this bull market. So don't rush into selling. While agreeing with the argument that profit booking is a necessary step for a short term investor, there is a need to reduce your selling on account of the broker commission also as explained earlier. Whether you have earned from a transaction or not, brokers charge hefty commission on your transactions. An example figure is 1.5% of the transaction. So next time you go for a sell, remember these losses.  

On 5th March 07 as I continue my observation, market continues to be in great pain and the SENSEX is down to 12415 levels after it was about to touch 15000 levels few weeks before. In May 06, I lost part of my principal and I was headed up in early Feb 07. However today I am again sitting with a wounded principal. Here, I begin to think whether there is a good time to enter the market (I started late Dec 2005) while there is no such thing as a good time.

My advice - stop at 'adjustments and realignments'.
I believe in things happening the way they happen and do not believe in good time and bad time. However, in the market, there is no doubt that the more you stay more you are at profit and more you are safe from crashes. In the short term, anything is possible. 

However keep in mind these things,
1. Watching the company and sector's performance and news flow.
2. Not selling until its is absolutely necessary to do so, and buying in part by part (morning the market may be +ve and in the evening
    on a big downfall) or making a 'limit' order. That is putting your new money in installments will help catch the best of the both.

A better idea than wondering when and whether to sell the scrip you trust, may be to sell a small part and enter the new one you trust and then wait and watch before making the next move. That's what I shall call adjustments and realignments''.

- TP Gopinath for CalicutNet.com