One of the best things that can happen to you as a shareholder is that a company you own shares in becomes the subject of a takeover bid. This is because the offer is usually significantly above the current share price, so the share price goes up to around the projected bid price and you can make great profits either by selling straight away or waiting for the takeover to go through.

However, it's a dangerous strategy holding on to bid target shares for too long, either until the takeover goes through or in anticipation of higher bids from other companies, because there is always the chance that the takeover will fall through and the share price will instantly drop back to previous levels.

This is exactly what has happened today when the news came through that the widely anticipated takeover of Sainsbury's by a private equity firm has collapsed. As a result the share price has plunged just over 20% at the time of writing to a more realistic price of 440p, which is roughly where it was trading at before the bid was announced earlier this year.

Investors in Sainsbury's have had months to bank any profits from the subsequent rise in share price after the bid was announced but any shareholders still holding today will be deeply regretting not doing so.

So I always think that it's best to sell up and bank your profits if a company you own becomes the subject of a takeover. Yes on rare occasions there may be further bidders who come in and place a higher bid, but most of the time the takeover will successfully go through, in which case the share price will usually remain static until it does so or the takeover will collapse and you've missed the opportunity to bank some excellent profits.