Here Are The 3 Reasons I Sell A Stock

Summary

This video script delves into the often-overlooked aspect of investing: when to sell a stock. It emphasizes the importance of selling not due to overvaluation but when the company's fundamentals change or an error in the original investment thesis is realized. The speaker references Phil Fisher's investment principles, advocating for a long-term approach, focusing on high-quality 'compounder' stocks and cautioning against selling based on slight overvaluation or recent gains.

Takeaways

• 📈 Investing in stocks is exciting, but selling is often overlooked and can be more challenging.
• 🤔 The decision to sell a stock is more complex than the decision to buy and should be based on a structured approach.
• 📚 Phil Fisher's work, particularly his book 'Common Stocks and Uncommon Profits,' provides valuable insights on when to sell a stock.
• 🔍 Investors should sell a stock if their original analysis was flawed and the company's fundamentals are less favorable than initially believed.
• 🧐 It's crucial for investors to be honest with themselves about their investment decisions and admit mistakes to avoid emotional biases.
• 💡 Selling a stock is also justified if the company has matured and its growth prospects are now in line with the overall market, rather than outperforming it.
• 🚫 Avoid selling a stock simply because it appears overvalued or has had a significant increase; focus on the company's long-term potential instead.
• 🤷‍♂️ Ego can cloud judgment, leading investors to hold onto stocks at the expense of potential gains in better opportunities.
• 📉 Investors should be wary of selling a stock after a decline due to a bad report or other temporary setbacks, as this could result in selling at a loss.
• 🌱 Selling a stock may be appropriate if a company's management deteriorates or if it no longer has the potential to grow its market significantly.
• 🏆 Fisher emphasizes that if the purchase was correctly done, the time to sell the stock is almost never, advocating for long-term holding of quality companies.

Q & A

What is the main focus of the content discussed in the video script?

The main focus of the content is on the often overlooked aspect of investing, which is knowing when to sell a stock. It delves into the analysis of a company's fundamentals, the decision-making process of buying and selling stocks, and references the investment philosophies of Phil Fisher.

Why does the speaker emphasize the importance of selling a stock as an integral part of investing?

The speaker emphasizes the importance of selling a stock because it is where investors face complex and confusing decisions. It is not just about buying a company for growth, but also about understanding when to exit a position to maximize returns or minimize losses.

What is the role of Phil Fisher's work in the context of this discussion?

Phil Fisher's work, particularly his book 'Common Stocks and Uncommon Profits,' serves as a reference point for the speaker. Fisher's investment principles and thoughts on when to sell a stock provide a structured approach to the discussion, influencing the speaker's perspective on investment strategies.

According to the script, what are the three main reasons to sell a stock as outlined by Phil Fisher?

The three main reasons to sell a stock according to Phil Fisher are: 1) When a mistake has been made in the original purchase and the company's factual background is less favorable than believed; 2) When the company no longer qualifies for the investment principles due to changes over time, such as deterioration of management or exhausted market growth; 3) When an investor finds a much more attractive situation in a different stock.

Why does the speaker mention the experiences with Amazon and Netflix?

The speaker mentions Amazon and Netflix to illustrate real-life scenarios where investors faced difficult decisions on whether to sell or hold stocks that experienced significant fluctuations. These examples serve to highlight the emotional and analytical challenges investors encounter.

What is the significance of the Bill Ackman and Terry Smith examples in the context of selling stocks?

The examples of Bill Ackman and Terry Smith are used to demonstrate how selling a stock at the wrong time can lead to significant losses. Both investors sold their positions in Netflix and Amazon, respectively, before the stocks experienced massive rallies, underscoring the importance of timing in the selling decision.

Why does the speaker argue against selling a stock simply because it appears overvalued?

The speaker argues against selling a stock solely based on overvaluation because it lacks precision in valuation and can lead to missing out on future profits. If a company is outstanding and has strong growth prospects, short-term overvaluation may not matter in the long run.

What does the speaker mean by 'high grading your portfolio'?

High grading your portfolio refers to the practice of upgrading from a good investment to one that is perceived as even better, based on clear evidence and strong conviction. It involves selling a stock that is performing well to invest in another stock that is believed to have superior prospects.

What is the potential pitfall of selling a stock because it has had a significant increase in value?

The potential pitfall is that investors may prematurely sell a stock that still has substantial growth potential, under the misconception that it has reached its peak. This can result in missing out on further gains that the stock could generate over time.

What final advice does Phil Fisher offer regarding the sale of common stocks?

Phil Fisher's final advice is encapsulated in the idea that if the job has been done correctly at the time of purchase, the time to sell the stock is almost never. This suggests a long-term approach to investing, focusing on holding onto quality stocks rather than frequently trading based on short-term fluctuations.