Stock Market Investing: Classic Advice on When to Sell

“If the job has been correctly done when a common stock is purchased, the time to sell it is — almost never.” — Philip A. Fisher, Common Stocks and Uncommon Profits, 1958

With the major market indices continuing to reach new highs, some investors are wondering if they should sell their stocks. After all, if prices are high & the holdings have been profitable, why not sell & take the gains?

On Wall Street, the preference to sell can be especially popular. Many brokerage & research firms publish price targets for stocks & recommend selling them once the target has been reached. Other firms routinely recommend moving to all-cash positions based on market, macroeconomic or geopolitical forecasts. Still others view stocks as little more than trading vehicles & move in/out many times over the course of a month, week, day or microsecond, as in the case of high-frequency traders.

At the other end of the spectrum are investors who never sell at all. In an article published in 1984, author Robert Kirby described a situation where his purchase recommendations were followed, but his sell recommendations were ignored. After many years, the result was an odd assortment of small holdings, several large holdings, & one huge holding of Haloid which later turned into a zillion shares of Xerox. Kirby, of course, had recommended that Haloid be sold.

In our investment club, our analytical work focuses on the underlying businesses of the stocks. We think of our club as part-owners of those businesses &, as long-term investors, our club owns the shares for as long as the company’s management team is doing its job to increase shareholder value. Given enough time, a company’s share price is likely to increase along with growth in its revenues, earnings, & dividends.

However, companies can change & industries evolve, & management teams can lose their way. Sometimes better opportunities develop elsewhere.

At the end of the day, investors are well-served if the job of analyzing a company includes a thorough review of its underlying business & fundamental characteristics — this holds true for selling & buying. If the company selected for purchase passes criteria on all counts, it could be a long time before it needs to be sold. And selling a high-quality, adeptly managed company just to take profits rarely is a viable long-term investment strategy.

“If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.” — Benjamin Graham, The Intelligent Investor, 1949

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