NC,
To follow up on Denny, who was following up on your question. My answer involves a question first, how old are you? Because if you are nearing retirement, then you definitely do not want to invest like myself, and you want to start thinking about not investing like Saul as well. At that point in time you need to conserve capital because the temporal defense may no longer apply to you.
Now, if you are younger. Like OMG! This needs to be taught in schools, but it won’t be taught in schools, because then too many people would be self sufficient. If possible live with the 80/20 plan, which means live off 80%, save 20%, and put money into the best quality disruptive stocks (of the sort Saul invests in, and of the only sort I invest in (use the IBD Relative Strength Index and cross reference it with whatever hey call thei fundamental index, and find a universe of the best growth companies on Earth).
It may never happen again, and I did not know it at the time, but it turns out the two stocks that I settled into, NVDA and ANET, were #1 and #2 on these lists (though NVDA has fallen back to #5 a month or so ago, last time I looked. Don’t know how they presently rank). For me, it was the result of wanting the best to maximize my returns while limiting my risks. I also owned SHOP, and transferred all my SHOP into ANET, my reasoning was mostly because I just wanted to own more ANET when it was clear they had reached an inflection point (w 100 GB switches becoming the norm), but I also had some fundamental reasons that has been the subject of many threads. Mostly maes me feel good about it.
So I do not say never sell. As an example, QCOM. Still a dominant company. However, its dominanc was made in 3G wireless. I originally held it to an 8 bagger, and the only reason I sold it was because I needed money for Rambus (that was a historical trade back in my baby days, my first encounter with FUD), and then. After the market crash (for which I stupidly did not sell. More later on this) I bought QCOM again because it had gotten ridiculously undervalued and it became a triple over the next 3 years. That was half my port at the time. ARMH was the other half. Two minimal risk companies fundamentally with big upsides.
Anyways, QCOM is still a great company. But when 3G growth ended, it was clear so would the growth of Qualcomm. So I sold it and never looked a back at it.
To make things shorter, there are two other reasons to sell other than you desperately or have a very compelling reason for the money, and those are disruption, and bubble.
Disruption happens all the time. The most clear cut and easy to demonstrate disruption was to AOL. That company was a monster. First laughed at for mailing tens if not hundreds of millions of floppy disks with AOL software on it for free. Then it grew to be the size of Microsoft, to the point that it bought Time Warner. It became AOL/Time Warner.
But you see, the executives at Time Warner (and I say this without bragging, it is just the truth that many of us understood - whereas much of what they understand is beyond us as well) is that broadband was coming. AOL was dial up, the world was going broadband. How was AOL suppose to stay dominant in the world of broadband?
Suffice it to say, Time Warner is again called Time Warner. It changed its name back within only a few years, as AOL’s fall was so fast.
Microsoft and Intel were disrupted by mobile internet, and so many examples of this.
The other is bubble. A bubble is when the marketcap has gotten so large that all the potential growth in the company, assuming things go great, is already priced into the stock.
E.g. Juniper networks, now valued at around $10 billion, leaped to a $50 billion marketcap. All projections of market size for it indicated, that YEP, that is just what Juniper will be valued at in 10 years, should all things come to fruition. So why bother even holding the stock! It was ridiculous.
I spotted these bubbles easily, but with naivety. I got out of such companies, but as I naive investor, did not understand everything going on. Hard learned lessons.
Oh yeah, fundamentals. Change.
Those are the reasons I have found to sell a stock.
Now as to market timing, some of the things like bubble and needing the money for some compelling reason are market timing. So that is relevant. But it has nothing to do with the market as a whole.
I’ve been at this since 1999. I have made so many amazing investments and caught so many bottoms that immediately soared thereafter, we jokingly called it the “Tinker” effect. But living life that way, and investing that way, unless it is your life, takes a toll. It requires intense commitment and focus. So I am trying not to do that anymore. If it is your job, great. But otherwise, timing like this gets in the way of life. Nevertheless, couldn’t help myself a few times as I got back in the market again. So yeah, I could still do it.
However, what I have found is, why? I am on my third decade of investing (alright less than 20 years, but 3 decades) and what I have found, illustrated so profoundly by ISRG, is through the internet bubble, 9/11, housing crunch, threee historical disasters, market collapse each of them, the companies that meet my criteria, that have not given a reason to sell, recover as sanity returns.
I bring up ISRG, because on NPI board we nit picked over it. It fell to about $95 or so, but we were putting in buy orders at $90. Never made it to $90. Guess waht it is selling for now? Yeah, 4 figures.
ISRG was one of the highest CAP factors in the market today, and it was just as high back then. But you know what, it never got cheap, never ever. It was always too expensive. Thus the importance of CAP and SAM over textbook valuations.
Examples like ISRG, for those special companies who meet these criteria, who have not hit the sell reasons, are numerous. Through thick and thin, disaster and pessimism, over time, returns from just holding these companies long, until such time as it is time to sell them, will far out perform trying to time the market.
In the past year, I recall two periods of time of panic. These lasted a few weeks each. Was that a time to sell?
In 2016 the SaaS stocks collapsed. I think it was in March or so of 2016. I had other things going on at the time and was not looking at the market then. So I don’t know why. Was that time to sell?
Sure the housing crash was time to sell, but how to know? In the end, just holding and buying more, systematically each month, and you will have killed the market, and minimized your risk, and minimized your stress, and minimized your tax bill (do not poo poo taxes).
So this has gone on too long, but I of course love to discuss the topic. The world today is full of systems. Systems such that even after the Great Depression, the best companies gave a great return if you could have held that long, even at the top. W.W. II was not the end of the market. The 1970s malaise was not the end. And these systems are even stronger and smarter now. It will take a destruction of modern civilization to destroy our economic systems. And if that happens, we will have much bigger things to worry about (that is what I thought about after 9/11, when I sold nothing and saw things collapsing to what I thought might be zero).
Thus the investment philosophy that I have returned to the market with. Fortuitously during a great bull market. But I also held 3 of the highest return non-biotechs, so I will take some credit for taking advantage of the circumstances.
Fortunately, these circumstances were (and currently are) supported by fundamentals. Thus I feel good about what I currently hold.
In the end, I will do better with the above philosophy than I will do by selling in and out to try and time things beyond the system described above.
And with that, I apologize for length and being so convoluted. I obviously need a beer.
Tinker
