Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on successful investing. Each Investor Toolkit update gives you a fundamental piece of investment strategy, and shows you how you can put it into practice right away.

Tip of the week: “Cut risk in your aggressive portfolio with our ‘sell-half’ rule.”

Our “sell-half” rule says that if a stock you own has doubled, you should sell half so you get back your initial stake. Once you’ve recovered your initial investment, you’ll be able to think more clearly about the stock.

• Our sell-half rule mainly applies to stocks in your aggressive portfolio: Selling half after a double is a good strategy for a high-risk investment, such as a penny mine. In fact, in Stock Pickers Digest, our advisory for aggressive investing, we routinely advise selling half of any high-risk investment in your aggressive portfolio that doubles.
  
  This can give you a clearer perspective on what to do with the other half of your investment. After all, if you are too slow to sell speculative stuff in your aggressive portfolio, your profits and even your principal can evaporate all too quickly.
  
  For example, in the June 2009 Stock Pickers Digest, we issued a “buy” recommendation on Intuitive Surgical (symbol ISRG on Nasdaq) at $150.66. The company makes the “da Vinci,” a computerized surgical system that lets surgeons operate remotely using tiny robotic arms. This is safer and far less invasive than regular surgery.
  
  Nine months later, in March 2010, Intuitive had more than doubled, to $341.14, so we advised subscribers to take some profits by selling half the Intuitive shares in their aggressive portfolio. The stock has since drifted down to its current $280.99. (We’ll take a closer look at Intuitive’s current market position, and the prospects for the da Vinci, and update our buy/sell/hold advice accordingly in an upcoming issue of Stock Pickers Digest.)

For a rising portfolio Learn everything you need to know in 'How to Find the Best Growth Stocks' for FREE from The Successful Investor. Canadian Growth Stocks: CGI Group, CAE Inc., Fortis Inc. Stock and more.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

• Be slower to sell high-quality stocks that have risen sharply: Every case is different, but you should generally hold on to high-quality stocks, even if they have doubled in price. One exception would be if a conservative stock makes up too much of your portfolio after doubling — say, more than 8% to 10%. Then you should at least consider taking some profits.
  
  Sometimes well-established stocks rise so high that we advise selling simply because they have gone too high in relation to their prospects. But as a general rule, it pays to be slow to sell your conservative winners, and quick to sell at least part of your holdings of aggressive or speculative winners.

Our advice: To succeed as an investor, you need to hold on to your best picks for lengthy periods. If you’re too quick to sell, you’ll never hold a stock that vastly outperforms the market, and you need a few of those to offset the inevitable disappointments.

Over the course of several years or decades, you’ll find that of all the stocks you own that vastly outperform the market, most were already well-established when you bought them.

That’s why you need to know the difference between well-established companies and more speculative stocks.

Next Wednesday, January 19, 2011, Investor Toolkit will give you our investment advice on another of our rules for lower-risk profits: the “4-year rule.”

If you buy aggressive stocks, you really should have a subscription to Stock Pickers Digest. The latest issue gives you our full analysis, including clear buy/sell/hold advice, on 19 stocks that may be suitable for the part of your portfolio you devote to aggressive investing. What’s more, you can get this issue free. Click here to learn how.