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What Is Top-Slicing?

moneyTop-slicing is a type of portfolio management technique used by some investors. It involves selling part of an investment, which is equal to the cost of the original investment when the value of the investment has risen appreciably. The remainder of the investment will therefore be the profit from the original investment.

Consider an investment of $1,000 that has increased in value to $1,500. By selling a number of shares that is equivalent to a value of $1,000, what remains invested, namely $500, is pure profit.

Top-slicing can be a compelling strategy but it fails to take into account valuation, which should be at the centre of every investment decision we make. For instance, an investment that has doubled in value may not necessarily be twice as expensive. In fact, the investment may still be cheap on various measures. So, while top-slicing may have helped to preserve capital, it may have also prevented capital growth.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.