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Common Stocks and Uncommon Profits

When To Sell

Investors decide to sell their stocks due to a variety of reasons. Some of them could be due to personal needs and others could be based on the sole purpose of maximizing profits. Philip Fisher focuses on the financial side of the story and highlights various scenarios where selling could be best. He believes that there can be three reasons why an investor decides to sell a common stock:


1. When an investor realizes that he has made a bad decision of buying the stock. It requires a great amount of self-control and self-honesty to admit that we made the wrong judgement. It is common to make a bad decision as the entire process of buying a potential stock is complex. Handling this situation is often inhibited by individual ego as nobody likes to admit that they are wrong. An ideal investor should put aside his emotions and follow a rational approach. It is best to sell a stock at the earliest if the investor realizes that they have made a bad purchase. Selling bad investments as early as possible minimizes one’s loss and opens the opportunity to invest the remaining funds into an alternate outstanding stock.


2. The second reason an investor should sell a stock is when the company degrades over time and fails to meet the 15 reasons for which it was bought. A potential company can degrade as management changes over time or the industry as a whole suffers. In the case where management deterioration has led to the downfall of a company, a stock should be sold as soon as possible.


3. The third reason an investor should sell stocks is when he finds a better investment opportunity.  Switching to better stocks is the best decision even with the hassle that comes with it. Before making such investment switches, an investor must extensively analyze the situation and minimize risks related to misjudgment.


Moreover, selling stocks based on the prediction of an upcoming business downturn is a bad decision in the long run.


Potential stocks will always rise to original price points even after a phase of strong depression. In the next bull market, there is a high probability for such stocks to reach their new peak.


Philip Fisher concludes the chapter by advising that potential companies that meet the fifteen points of buying will always regain their position and rise through downturns and depression. It is crucial to have patience as strong companies will always come up with a solution to overcome economic downfalls. When a correct stock is purchased, “the time to sell it is --- almost never”. 


We have seen this approach from Warren Buffett, who says that he will never sell Coca-Cola stock.

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Units 7/18