Diversification or "Diworsification"?

If you hold growth stocks and they perform well, how do you know when it's time to rebalance those gains into some other holdings?

Jason Moser
Jason Moser
(TMFJMo)
Apr 16, 2014 at 7:00PM
Investment Planning

In this edition of The Motley Fool's "Ask a Fool" series, Motley Fool analysts Jason Moser and Brendan Mathews take a question from a reader who writes:

I have a double on two companies that I believe have growth ahead of them. I am considering two other companies that could also grow as well. If I take the gains from the two that I own and buy the two companies I am considering, it would diversify the portfolio further. Is this FOOLISH?

Jason and Brendan agree that selling is often the most difficult thing to do. There are many reasons to sell: a broken investment thesis, a fulfilled investment thesis, or even a better place to put one's money. Jason says it can make perfect sense in some situations for an investor to harvest some gains from a successful investment in order to put the money to work in a better idea. As always, though, investors need to remember that some situations might carry tax implications in selling, which is something to keep in mind.