Everyone loves to talk about being a “long-term investor.” It almost sounds noble, and certainly a far wiser pursuit than the degeneracies of trading.
Not without good reason, either. When your focus is beyond the immediate future you allow time for compounding to do it’s thing, and you’re less likely to be shaken out by volatility. When you find a great business, it really does pay to stick with it for as long as you can.
But few businesses become great, and no business stays great forever. Of all the stocks in your portfolio, maybe one or two will genuinely deserve to be held for more than 10 years. Some will stumble, others will stagnate, and a few might simply fall short of overly bullish expectations.
The trouble is, you don’t know which ones are which. Not yet. And even the best winners will evolve in ways that you couldn’t predict.
Things change. In fact, change is pretty much the only certainty in this game.
That’s why “long-term” is an intention, not a promise. And if we’re not careful, it can morph into a convenient excuse for complacency.
This is why, even for the most hard-core of long-term investors, selling matters just as much as buying. (The exception being something like a broad-based index tracking ETF, which will do the reweighting and substitutions for you.)
Is the company executing? Is the leadership still strong? Is the market opportunity growing? If the answers stop aligning with your expectations it’s okay to cut ties, even if the hope was to stay invested for many years.
Your long-term capital is a privilege companies must earn. And most don’t.
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