Outside of the businesses I own doing something morally bankrupt, or a single position growing to such a significant position that it keeps me awake at night, I intend not to sell any stocks before retirement.
While a much tidier portfolio is alluring in its own right, I love owning portions of over 140 companies (thank you, fractional shares) that are genuinely fascinating to me. This approach allows me to cast a wide net and focus on adding to my winning picks over the long term, letting my losers fade away into obscurity.
So why don’t I sell these stocks that seem destined for irrelevance?
Here are three key reasons.
Image source: Getty Images.
Selling FOMO
When investing, “fear of missing out” is generally tied to not buying a breakthrough stock as it rockets upward or not knowing about some bleeding-edge technology that could revolutionize our world. However, while I also have this FOMO about missing new ideas, my more significant fear is missing out on something I had already owned — but gave up on too early.
This unusual fear stems from a 401(k) rollover I made around 2013 when I switched jobs. At the time, I was a proud owner of eBay shares, mainly due to its ownership of a promising company named PayPal (NASDAQ: PYPL).
The problem is — and I don’t remember the exact details of why — when I rolled over my 401(k), I decided to transfer the cash amount rather than the shares I owned. Either way, I would surely buy back into my favorite positions.
Right?
Narrator: “He didn’t.”
As I sat on the sidelines watching eBay spin off PayPal (and watching shares of both rise quite beautifully over time), I vowed to try to never do that again.
While I have unfortunately made a few more selling mistakes since, mostly worrying about a broken investment thesis, these sales have reaffirmed that taking the “lazier” route would have provided much better returns over the long run.
While I didn’t specifically sell eBay because I was unhappy with it, the transaction has served as a brilliant reminder of the future gains I am potentially sacrificing each time I sell.
Too many great investors’ biggest mistakes
A simple Google search along the lines of “my biggest investing mistake” immediately returns a cascade of famous and great individual investors alike, saying that selling too early was their biggest regret.
Whether it’s Warren Buffett’s most regrettable sales or the seemingly infinite number of investors who sold Amazon amid its incredible run (myself included), the majority of selling is simply a brilliant way to interrupt the power of compounding returns.
By asking myself not to sell — if at all avoidable — I am accepting greater downside risk (up to 100% of my original investment) as I hold through what may be many trying times in the company’s life cycle. Look no further than my current positions in Latch, Teladoc, or Peloton and their declines over the last year.
However, I also retain the infinite potential upside theoretically remaining with these companies. Is the investment thesis as bright as it was just a year ago in each of these stocks?
Not really.
But am I confident they’ll fail?
Of course not — there are no sure things in investing — so I’ll keep holding, especially as their small portfolio position sizes now afford me that opportunity.
The issue of timing
Last but not least is the recognition that if I do decide to sell something, I not only need to advantageously time that sale to my benefit but do the same bit of timing with purchasing new stocks.
Since I do not have much technical trading prowess to execute this sale and subsequent purchase successfully, taking the infinitely easier route of doing nothing is far more prudent for me.
Yes, I could sell my least favorite 10 or 20 current holdings and buy one new stock I like.
It seems like the obvious move, right?
However, it would only take one of these “losers” succeeding over the next decade or two to make me feel foolish due to their unlimited upside potential. On top of this, the newfound stock I buy may not perform any better than anything I previously owned.
By focusing on dollar-cost-averaging into businesses instead, timing trades doesn’t need to be a part of my investment strategy.
This focus allows me to add to my winners and let my non-performers right-size themselves with time.
Or maybe — just maybe — it gives them the chance to become the next Nvidia (NASDAQ: NVDA), whose stock price went largely nowhere from 2002 to 2012 but has risen almost 5,000% since.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Josh Kohn-Lindquist has positions in Alphabet (A shares), Amazon, Latch, Inc., PayPal Holdings, Peloton Interactive, Teladoc Health, and eBay. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Latch, Inc., PayPal Holdings, Peloton Interactive, and Teladoc Health. The Motley Fool recommends eBay and recommends the following options: short October 2022 $50 calls on eBay. The Motley Fool has a disclosure policy.
