Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Over several weeks we look at investing from the point of view of our Successful Investor Wealth Management service. In each of these Toolkits, we examine portfolio decisions that investors face and what we advise. This week, essential advice on how to trade stocks: When you sell, you should take a positive approach that improves your portfolio—and ignore the investment myth that claims it’s easy to “buy low and sell high.”

For last week’s Wealth Management Toolkit on how to buy stocks successfully over your investment career, click here.

Today: You should sell stocks in a way that improves your portfolio.

Many of our wealth management clients live off their investments. From time to time, they need to sell some of their holdings to supplement their dividend income. Rather than trying to predict price changes or spot highs and lows, we focus on tailoring the client’s portfolio to his or her circumstances and temperament.

We still have opinions on the outlook for the market and individual stocks, and we take them into account. But we focus on designing a portfolio that suits the client and won’t suffer too much if our predictions are inaccurate, as will inevitably happen from time to time.

Here’s one highly simplified example. As you know, we spread client funds out across most if not all of the five main economic sectors. The Manufacturing and Resources sectors are the most volatile of the five. That’s where our clients’ biggest gains are most likely to appear. If we focused on predicting stock prices and spotting highs and lows, we might be inclined to sell some manufacturing or resource winners early, in hopes of “buying them back on a dip”, as brokers say. But we know that selling your best stocks early can deprive you of your biggest long-term gains. So, we tailor our profit-taking to the needs of the client.

If gains in Manufacturing and Resource stocks have left an income-seeking client with too much exposure in those sectors, we may reduce his or her holdings in those areas when cash is needed. On the other hand, if a client is still adding to his or her investments, we’ll hang on to winners in these highly volatile areas, if we feel they have additional capital-gains potential. But when the client adds funds to the portfolio, we’ll invest the new funds in the other sectors.

This dilutes any excess exposure to the Manufacturing and Resource sectors, while cutting the risk of selling your best stocks way too early (for our advice on how to avoid selling too soon, read this recent Investor Toolkit)

Would you recommend your financial advisor to your best friend? It is a source of pride to us that so many of our portfolio management clients are referred to us by clients who have been with us for years. The first thing that earns us referrals is a history of good results. But our clients also vouch for the way we conduct our business. We have eliminated conflicts of interest. That way, clients get  unbiased management of their portfolios, without hidden costs or commissions.  When you hire us to manage your investments, we tailor your portfolio to your specific circumstances—your goals, your temperament and your personal financial situation. We work for your benefit and convenience, not ours. Learn more

How to trade stocks: Investing would be easy if there was a reliable source of market predictions

The factors we focus on—investment quality, portfolio diversification and balance—have little interest for many beginning or unsuccessful investors. They assume the key to making money in stocks is simple: just buy low and sell high.

In fact, successful investing is simple, but not easy. The factors that make a stock attractive are easy to spot. However, many people find it hard to focus on these factors. Success would be much easier if you could simply find a reliable source of market predictions. The problem is that nobody can consistently predict market direction. No one can reliably determine what is “high” or “low” in the price of a stock. But the Successful Investor method gives you a way to live with this uncertainty.

The method gives you a way to build an investment portfolio that generates enviable results when stock prices are rising, and limits your losses when prices fall.

Next week: How to avoid jinxing your portfolio.