Updated: September 27, 2023
Listen to this episode:
Listener Questions:
A friend and podcast listener, Carmi, sent me a question. She says:
Hi Fitz. When is the best time to top slice my stocks? Is it okay to top slice then put it on other stocks or not to top slice at all if I don’t need the money anyway? Thank you.
Similarly, another question, this time from Yan asks:
Hi, Sir Fitz. I just want to ask, what’s the best thing to do if you already have enough money on your index fund? Is it okay to sell every now and then every time there’s an increase with its value or keep it for along period of time?
Although Yan didn’t ask about top slicing, what was described is, somehow, what you do when you are top slicing your investments.
But what exactly is top slicing? Let me explain.
What is top slicing?
Top slicing is a concept that’s commonly attributed to investment analyst Simon Thompson.
It entails selling a part of your winning investment to lock in the profits but leaving a little bit of it there to capture any remaining upside.
For example, let’s say you bought 100 Jollibee shares at P200. This means you invested P20,000.
Jollibee then went up to P300. So your investment is now worth P30,000, and you have P10,000 or 50% as paper gains.
Top slicing means you would sell some of your shares to lock in the profits. Let’s say you can sell 70 shares of Jollibee at P300. This gives you back P21,000 or a P1,000 profit.
You have 30 shares remaining. At this point, you now have zero risk because you already got your original P20,000 investment back plus P1,000 profit.
So regardless of what price you sell the remaining 30 shares, that’s pure profit.
And now, you have P21,000 cash that you can reinvest.
The benefit of top slicing is that you bank some profits or even gain back your original capital but still have a chance to earn more if the remaining shares go up.
The other advantage of this strategy is that you can free up some cash and reinvest it somewhere else or, in most cases, buy back the original investment when the price corrects or temporarily goes down.
Now, back to the questions:
First, when is the best time to top slice your investment?
For traders, a 20% increase in the stock price is already a good indicator to top slice. But for long-term investments, I would wait for at least a 50% gain in value.
Second, how much should you top slice?
Ideally, redeem enough to get back your capital so your investment becomes risk-free. But it can vary depending on your overall portfolio strategy.
And lastly, is it better to top slice or is it okay to just leave your investment untouched?
It depends on the outlook of the investment. If it’s most likely to go up further, then just leave it there and get more gains. If it’s most likely to go down, then top-slicing is a better option.
Top slicing is more of a stock trading technique than an investing strategy. If you don’t have time to regularly analyze your investments to determine the trend and outlook, then it’s completely okay to leave them untouched, especially if they’re long-term investments anyway.
But be sure to rebalance your portfolio and manage your allocations at least once a year so you can stay on course toward your financial goals.
The 80 Percent Express are special short episodes where I share a financial concept or answer a question sent by a listener.
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