Selling Savvy: When to Exit?

Dear Fellow Investors,

In today's world of high volatility and rapid market swings, one question that has baffled even the most experienced investors is: "When is the right time to sell?" Understanding the right moment to exit is as critical as knowing when to dive in. Therefore, today, I would like to shed light on this topic and share some invaluable insights from top investors.

One classic case in the investment world that perfectly illustrates the art of knowing when to sell involves the history of Berkshire Hathaway. In the early 1960s, Warren Buffett started buying shares in Berkshire Hathaway, a struggling textile mill, for $7.60 per share. By 1965, Buffett had assumed control of the company. He eventually took it out of the textile business and transformed it into a holding company with diverse investments. If an investor sold Berkshire Hathaway shares in the late 1980s when the price was around $8,000 per share, they would have made a thousand-fold return. However, those who held on until 2021 saw the price skyrocket to approximately $400,000 per share.

Here are some nuggets of wisdom from top investors on knowing when to sell:

• Warren Buffett: "Our favorite holding period is forever." However, he also suggests to sell if the reasons you bought a stock no longer hold or if you find a much better opportunity.

• Charlie Munger: "The wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don't. It's just that simple."

• Mohnish Pabrai: "I like to be in a situation where the odds are stacked heavily in my favor – in a situation where I would lose maybe 15-20% of my investment but the upside is several multiples of that."

• Li Lu: "Hold your investments for as long as the fundamental reasons you bought the stock remain valid."

• Howard Marks: "Sell when your analysis tells you an asset no longer provides good prospective return for its risk."

Let's look at another example of Apple Inc. If you had invested $10,000 in Apple when it first went public in December 1980, your investment would have been worth over $12 million as of 2021, assuming you had reinvested all dividends. While there have been several tempting moments to sell throughout these four decades, patience would have reaped the best returns.

In conclusion, the right time to sell can vary greatly depending on individual circumstances, investment goals, and market conditions. It requires a balance between patience and careful analysis. Selling should be based on a change in the fundamental value of a company, not market fluctuations. Ultimately, the best advice is to thoroughly research and understand your investments, maintain a long-term perspective, and always be guided by facts, not emotions.

Stay well and invest wisely!