"You never go broke taking a profit."
We've all heard this investing "wisdom." I'm convinced it's one of the most dangerous myths in investing.
Here's why:
The best investments don't just go up 50% or 100%. They compound for years or decades, returning 10x, 20x, or more. When you "take profits" on a still-growing company with an intact business thesis, you're cutting off the exponential part of the growth curve.
I've been tracking what happens to stocks after they hit new all-time highs. Counterintuitively, high-quality companies that hit new highs are statistically more likely to keep hitting new highs.
Take Mastercard. Many investors trim whenever it hits a new valuation high. "It can't possibly go higher," they reason. Yet over the past decade, it's delivered over 800% returns while maintaining its premium valuation.
Doing nothing is often the most profitable strategy. The S&P 500's 10% annual return since 1926 came from just 7% of trading days.
Instead of randomly "taking profits," I like this:
* Document your investment thesis for each stock
* Create specific selling triggers (not based on price alone)
* Institute a 72-hour cooling-off period before any unplanned sells
I write more about these investing frameworks and analysis in my blog if you're interested in diving deeper (link in profile).
What's your approach to taking profits? Has holding or selling worked better for you over time?