Selling stocks at a 20% profit is a widely recommended, disciplined strategy to lock in gains, particularly for growth stocks that often correct after such an advance. It helps avoid emotional, greedy decision-making and protects capital from market pullbacks. However, consider holding if the stock rises rapidly (within 3 weeks) or is in a strong uptrend.
When to take stock profits. When buying a stock, estimate a percentage you plan to sell at. For example, you may sell a position when it profits 20% to 25%. Once you reach this number, sell some or all of the position, or reevaluate your goals.
Once you own a stock, you need to decide whether to hold or sell it. The 20%-25% profit-taking rule provides investors with a new approach to deciding the selling point. However, there are other popular strategies for taking profits.
That being said, 20-30% annual returns is great no matter what. It's guaranteed to be in the 99th percentile of performance. Buffett has returned about 20% annualized since 1965. So keep that in mind, the best investor in the world has ``only'' returned 20%...but he's been doing it for over 50 years.
A widely accepted rule of thumb claims that a properly diversified portfolio must have no more than 10 to 20 percent of total investment assets in a particular stock.
The "Rule of 90" in stocks most commonly refers to Warren Buffett's advice for his wife's inheritance: 90% in a low-cost S&P 500 index fund for growth and 10% in short-term government bonds for stability, designed for long-term investors. However, a more pessimistic "Rule of 90-90-90" suggests 90% of new traders lose 90% of their capital within 90 days, highlighting the high failure rate due to lack of education, emotional trading, and poor risk management.
While this represents respectable growth over time, it also accounts for fluctuations experienced annually. Aiming for a 30% return necessitates venturing far from established benchmarks, venturing into riskier and less predictable territory.
Consider these six reasons to sell an investment — more than one may apply
These are some of the top mistakes investors typically make and my suggestions for what to do instead:
Warren Buffett emphasizes focusing on a company's intrinsic value over short-term market hype, advocating patience, discipline, and buying wonderful businesses at fair prices, even while acknowledging current high valuations and potential tech bubbles, urging fear when others are greedy and caution with speculative stocks, suggesting that while the market fluctuates wildly, quality businesses eventually align with their true worth, though it takes time.
The Rule of 72
This simple calculation shows how effective following the 20%-25% profit-taking rule can be. Here's how it works: Take the percentage gain you have in a stock. Divide 72 by that number.
No investors, let alone billionaires, will want to own stocks with falling profit margins and shrinking dividends. So if that's why Buffett, Paulson, and Soros are dumping stocks, they have decided to cash out early and leave Main Street investors holding the bag.
“You're looking for three things, generally, in a person,” says Buffett. “Intelligence, energy, and integrity. And if they don't have the last one, don't even bother with the first two.
Your $500,000 can give you about $20,000 each year using the 4% rule, and it could last over 30 years. The Bureau of Labor Statistics shows retirees spend around $54,000 yearly. Smart investments can make your savings last longer.
If Warren Buffett had $10,000 today, he'd focus on finding overlooked, high-quality small companies (small-caps) at attractive prices, buying them as businesses, not just stock tickers, and letting compound interest work over a long period by starting early and reinvesting dividends, much like he did in his early days, emphasizing fundamental value over market hype.
While no one can predict the future, most economists in early 2026 anticipate continued, albeit slower, economic growth for the U.S. in 2026, with risks of a recession elevated but still less likely than a major crash, though some experts warn of potential market corrections or deeper downturns linked to factors like an AI bubble or past policy stimulus. Key themes include a resilient economy driven by consumer spending and AI investment, alongside concerns about inflation, potential tax cut impacts, and high stock market valuations (like the Buffett Indicator).
This may sound real and good, but the shocking reality is that a massive 99% of people fail to be profitable traders in the long run.