In my last month’s newsletter, I briefly touched upon deliberating on idea of selling and not holding stocks at over stretched valuation

Charlie Munger says ,

Investing is where you find a few great companies and then sit on your ass

Fisher famously stated that

the time to sell a stock is almost never if the right kind of company is purchased after extensive research and analysis

Another theory could be that I am operating under disposition effect i.e. instead of looking at the overall portfolio performance, I am looking to gain from every stock. This narrow framing leads to selling winners and holding onto losers, I partially mitigated this by always looking for performance at portfolio level rather than at individual level

Also, it’s painful to sell winners too early. If they really skyrocket

See how some of our exited positions have sky rocketed in this bull run

Sitting-1

My investing philosophy is also evolving, I liked what Buffet wrote in 1967 letter

sitting-2

My logic was that for a small portfolio, this is the best way to gain size, i.e. buy things at attractive prices and then resell them when price catches up and keep doing this till portfolio attains a reasonable size, I was also not bothered to extract the maximum juice out of a given position again going by what Buffet wrote in 1963 letter

sitting-3

So is above right approach ? or One should sit on his ass and do nothing, if in model portfolio we did nothing we would have made better returns than selling and then entering new position (if I take short term capital gains into account)

See below (prices noon 10/08/2015)

Sitting-4

So sitting on ass strategy works, but I am cautious of blindly following Munger, Re read what he said

Find a few great companies and then sit on your ass

Munger is one of the greatest investor of our times, for someone like me it’s difficult, very difficult to find great small companies and many a times I can err (that’s my reason to diversify) and I have erred many a times in past

Another reason that led me to sell is the raging bull market where price valuation gap catch up has been very fast, see Symphony or Tata elxsi in first table, this will not happen in a normal market scenario

Also look at the kind of companies which Buffet has held for longest

sitting-5

Above are iconic compounding machines and not all companies fit this category

So what is conclusion ?

Should we hold through temporary over valuation or sell and divert money in new opportunities ?

Opinions are divided and practitioners of both schools of thoughts have done well

For me

I will sell if I have a better opportunity to deploy cash, however I have learnt that I should stagger my selling. Please understand that there is no holy grail in investing so try and see what works for you

So what works for you ? share in comments