Never Sell a Winner.
- Posted by chicagosean
- on March 6th, 2011
In sports, in life, in business, and in investing, never sell a winner.
I’ve been giving this some thought lately. Initially spurred on by Warren Buffet’s annual letter to shareholders, but also as the NHL trade deadline just came and went, with spring training beginning, and even with all this crazy Charlie Sheen #winning business. These mostly unrelated events have gotten me thinking about the importance of staying with what works.
I love when I see winning athletes like Steve Yzerman (Detroit Red Wings) or Derek Jeter (New York Yankees) play their entire careers with one organization. And I have crazy respect for corporate executives who work their way up from the “mail room” like Jim Skinner (McDonald’s), Jack Welch (GE), and Sam Palmisano (IBM). And likewise, I’m always envious of the investors who had the fortitude, insight, and/or luck to make early investments in companies like Google, Apple, or Berkshire Hathaway, and held them forever.
What all of these unique situations have in common is a pervasive mindset of rewarding what works. No best-friend relationship, employer-employee dynamic, athlete, or investment will be winning all the time. In fact, there may be significant retracements in each. But if the long-term metrics that are unique to each are in a long-term uptrend, there is never a reason to abandon ship.
With this in mind, I am finally about to embark on long-term investing. I’ve been a Trader for nearly 14 years, but I’ve never held a stock or a mutual fund for longer than 3 months. This is about to change. Interestingly, I’m fully aware that by deciding to do this now – after a 100% gain in the S&P since the March 2009 bottom – I’m surely calling the top in this great bull run. If this indeed turns out to be true, all you bears and short-sellers out there can buy me a beer and I’ll gladly accept.
Knowing this risk, I won’t be going all in tomorrow. Far from it. I’m only going to begin systematically building a long term portfolio – one week and one investment at a time. Utilizing tools from Investors Business Daily and the StockTwits 50, I’ll be seeking out companies with rapidly growing earnings, revenues, and top relative strength. I will regularly add to my winners (at ever higher prices), and I will cull the losers from the portfolio during market corrections. But most importantly, it is my intention to never sell my winners.
Warren Buffett didn’t get rich by selling 10% gains on his stocks and companies. He (and his investors) have gotten rich by making “permanent” investments. His timeframe is famously “forever.” I’m 35 years old, and I expect my “forever” to be a very long time. If my investments are in companies that are consistently earning money and growing their businesses, and I stick with them through thick and thin, do you think I’ll be able to outperform the 1% APR I’m earning on my ING savings account these days? I think so.
Bottom line is this: despite the huge run the market has had recently, when you take a few steps back and look at the very big picture, the last 11 years have basically been a lost decade where the markets have traded in a sideways (though pretty wide) range. The next generational leg up in the US Economy might be epic. I don’t know when it’ll start. But it’ll start in my lifetime. And when it does I want to be fully invested in profitable, cutting edge companies that will lead the way. And for me, that starts now.
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Sean McLaughlin - Editorial, Curation, & Investor Relations Solutions at StockTwits. Also, former Member of the Chicago Board of Trade who trades his own account in Boulder, Colorado. More »
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