When to Sell: Does Anyone Believe in the Long-Term Anymore?

In the world of investing, we spend countless hours talking about when to buy. But the question of when to sell often feels far more complex, emotional, and laden with potential regret.

Does anyone truly believe in the long-term anymore, or are we all just waiting for the perfect moment to cash out?

The Tax Tangle: An Investor’s Dilemma

I have a good friend who we've advised for over fifteen years, and I truly believe her plan is never to sell her stocks. Why? She once took our advice to sell a position (Equinix), and while it was a great call—the stock stayed flat for years after—she incurred capital gains and had to pay income tax. The pain of the tax bill often outweighs the pleasure of the profit!

This perfectly illustrates the central tension in selling: locking in gains often means paying taxes now.

Yet, selling is sometimes necessary. The investing landscape is full of conflicting advice on when to pull the trigger:

• The Percentage Rule: Sell when the stock rises by a predetermined percentage, like the 20% to 25% profit-taking rule.

• The Fundamental Shift: Sell when the company's fundamentals or chart patterns clearly indicate a sustained slowdown in growth.

• The Risk Reduction: Sell some stock to lock in gains and reduce your risk exposure to a single position.

Ultimately, your decision on when to sell must be guided by your individual financial goals, risk tolerance, and overall investment strategy.

Jim Cramer’s "House Money" Rule

One of the most popular strategies comes from financial personality Jim Cramer, who advises a simple rule of thumb: when a stock doubles in value, sell half.

His reasoning is powerful: You've recovered your entire original investment, and now the remaining half is essentially "free money"—you are "playing with the house’s money." While this strategy mentally alleviates risk (you've made back your principal!), remember you are still required to pay taxes on the profits from the half you sold. It's not truly someone else's money!

The Case for "Getting Lucky" and Avoiding Greed

Sometimes, the market just hands you a gift.

Back in 2019, we made a quick $2,800 profit on a stock called Intercept Pharmaceuticals. There was buzz about a new drug for nonalcoholic steatohepatitis. As the drug moved through testing and the FDA approval process, the stock price soared.

At a certain point, we decided we had gotten lucky. This stock was never a core holding, and the risk/reward ratio became unfavorable. We took the profit and walked away.

The lesson here is profound: Don't be greedy. If an investment sounds too good to be true, it often is. And when in doubt, remember the age-old wisdom: "No one ever went bankrupt taking a profit."

The Best Strategy: Buy, Hold, and Add More

So, if selling is so complicated, what’s the best long-term plan?

The most effective strategy isn't about perfectly timing an exit; it's about perfectly choosing an entrance and then having the discipline to hold and add more.

1. Buy stocks you have researched and watched.

2. Buy some more of them (Dollar-Cost Average).

3. Hold them.

Look for stocks with gradually rising charts that demonstrate long-term stability—companies like food retailers such as Costco or Kroger. These companies don't offer explosive, lottery-ticket returns, but they offer stable, compounding growth over decades.

Find those reliable charts, buy them, and buy more if you can. For your core portfolio, the long-term approach remains the most proven path to lasting wealth.