I've been thinking a lot lately about exit strategies. Not the awkward kind where you fake an emergency call to escape a bad date—though investing sometimes feels eerily similar—but the financial kind. When exactly do you pull the ripcord on your stock positions?
This question landed in my inbox from a 22-year-old investor last week, and it stopped me in my tracks. It's one of those deceptively simple questions that exposes a massive blind spot in financial advice. We finance folks can debate asset allocation until we're blue in the face, but when it comes to selling? Crickets.
"Buy low, sell high." Thanks for nothing, Wall Street. That's about as helpful as telling someone to "be successful" without explaining how.
The gospel according to investing legends—Bogle, Buffett, and their ilk—preaches the buy-and-hold approach with religious fervor. And look, there's substance behind it. Markets generally trend upward (eventually), transaction costs are a silent killer, and timing the market consistently? You'd have better luck teaching my cat calculus.
But here's what nobody admits: almost nobody—and I mean nobody—actually follows a pure "never sell" strategy in real life.
What happens instead is fascinating. We develop what I call "sale triggers"—personal circuit breakers that override our default setting to hold forever.
The most obvious are life-event triggers. You need cash for a house, junior's college tuition comes due, or retirement beckons. These aren't market timing decisions; they're just life happening. Even Warren would give you a pass.
Then there are valuation triggers. I've watched level-headed investors transform when their obscure tech pick suddenly trades at 40x sales because some Reddit forum discovered it. "This is just getting silly now," they mutter, right before hitting the sell button. The trick (and it's a doozy) is separating temporary froth from genuine paradigm shifts.
My personal favorite—and probably the most intellectually defensible—are thesis violation triggers. You bought Company X because of specific reasons A, B, and C. If those fundamentally change... well, why are you still holding it? Maybe the CEO starts making bizarrely erratic decisions, or that impenetrable competitive moat suddenly looks more like a puddle after competitors innovate.
(Having covered corporate disasters since 2008, I can tell you that companies rarely ring a bell announcing "We're about to implode!" The signals are usually subtler—and by the time they're obvious, the smart money has already left the building.)
Portfolio rebalancing triggers aren't about abandoning ship entirely but trimming positions that have grown too dominant. If your Apple stock mushrooms from 5% to 25% of your portfolio... congratulations! But also, maybe dial that back a bit? That's not timing the market—it's just sensible risk management.
What fascinates me is how our selling discipline reveals our true investment psychology. Some folks set rigid price targets—"I'll sell when it doubles"—while others develop Byzantine systems involving moving averages and technical indicators that would make aerospace engineers weep.
For our 22-year-old questioner, time is an abundant resource. At that age, a "long-term horizon" isn't just marketing fluff; it's mathematical reality. But even with decades ahead, developing a thoughtful framework for when to sell isn't optional. It's the vaccination against panic-selling during market meltdowns.
The approach I've seen work best? A combination of precommitment with flexibility. Decide in advance what would make you sell a particular investment. Write it down somewhere (seriously, put it on paper—our memories are suspiciously convenient when it comes to revising history). But allow that criteria to evolve as you gain experience.
Here's the uncomfortable truth about investing that the "never sell" crowd glosses over: the ideal holding period may indeed be "forever" for truly exceptional businesses, but not every stock in your portfolio is exceptional. And—this is crucial—not every exceptional business stays that way forever.
Just ask folks who were long-term holders of Kodak, Sears, or General Electric. Those "forever stocks" weren't so forever after all.
In investing, as in comedy, timing isn't everything—but pretending it doesn't matter at all? Now that's the real joke.
