When it comes to investing, there is perhaps nothing more gratifying than unearthing a gem of a stock that turns out to deliver some very big gains. Companies like Amazon.com (Nasdaq: AMZN), Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) are marquee examples of large-cap stocks that continue delivering large gains; however, the real playground for hitting home runs is in the small-cap arena.
This year, small-cap stocks as represented by the iShares Russell 2000 Index (NYSE: IWM), a proxy for the index of the same name, have seen very strong upside of nearly 12% year to date. That's solid, although compared to the Nasdaq 100 index's year-to-date surge of nearly 23%, it seems rather timid.
This relative underperformance of small caps could be read as a warning sign for the sector, and if the overall bias in the market turns from bull to bear, stocks in what is generally considered a "risk on" sector will become vulnerable to a sharp sell-off.
If you own small caps right now, and particularly if you own small caps that have seen very big gains this year, now may be the time to take profits.
The following is a list of 25 of the most widely held, as well as best-performing, components in the Russell 2000 Index so far in 2012. As you can see, there have been some exceptional triple-digit percentage gainers this year.
Gains like these are hard to come by, so if you own any of these stocks, you should evaluate where you are in each and consider selling at least some of your position. Even if you have confidence in the company, know their business well and think that their share price is destined to continue delivering triple-digit gains, there's nothing wrong with taking at least some of your profits off the table.
In my experience, taking profits in a winning stock is one of the hardest things to do. If you buy a stock, and you're right about its direction, then you've just been validated and you want to see that validation through to the end. This is the greed factor, and it is the chief reason why many people watch in horror as a stock they've bought goes from being up 10%, 20% or even 30%, to a stock that's fallen back down into negative territory.
Action to Take --> Don't let this happen to you. If you own any of the small caps on this list, and if you are sitting on a substantive gain, consider taking a few of your chips off the table. If the "risk on" trade switches off, you'll be very glad you did.
This article originally appeared on TradingAuthority.com:
Sell These 25 Small Caps Before They Crumble