To read our full disclaimer, click here:
We’ve spent a lot of time here on the art of buying.
Thomas Phelps and his 360 companies that returned 100 to 1. Peter Lynch and the edge hiding in plain sight. Charlie Silk and the 150-bagger he held for eight years. Small, ignored, high returns on capital, long runway, hold on.
But there’s a question that framework never quite answers, and it’s the one I get asked more than any other.
When do you sell?
Today’s post is my attempt at a proper answer - through the best short essay I’ve ever read on the subject.
And I’ll say this upfront: this question is the reason behind a lot of what I’ve been quietly building at Multibagger Ideas this year.
The theory of selling is useless without a way to practise it - a written record of why a position exists, and a live evidence trail to check it against.
So while the first half of this post is theory, it builds to something practical.
I’ll show it to you at the end.
Back in April 2012, a reader of Chris Mayer’s Capital & Crisis newsletter put the selling question to him in the sharpest way possible. He accused Mayer of a contradiction.
You preach Phelps, the reader said. Buy right and hold on. And yet you keep taking profits every time a stock doubles.
Isn’t the take-profits approach an admission that you don’t actually believe in your own picks - “falling down stairs every time you almost reach the top”?
Mayer’s reply turned into a mini-treatise on selling. This was 2012, remember - three years before he wrote 100 Baggers. You can already see the book taking shape in it. And fourteen years later, I still think it’s the clearest thinking on the subject out there.
Let’s walk through what he actually said…
The reader’s accusation rests on a misreading of Phelps, and Mayer starts by correcting it.
Phelps never said hold blindly. His own words:
“My advice to buy right and hold on is intended to counter unproductive activity, not to recommend putting them away and forgetting them.”
That distinction carries the whole essay.
Buy and hold is a defence against churn - against reshuffling a portfolio every time a headline drops. It is not a vow of ignorance. The holding is done with eyes open, watching whether the business is still doing what it was bought for.
Which means the real question isn’t whether to sell.
It’s what should trigger it.
Mayer’s first answer is about what shouldn’t trigger it: a rule.
He didn’t automatically sell half when a stock doubled. He was against mechanical rules of all kinds.
His approach was judgment:
When a stock is fully valued or close to it, let it go - or at least a part of it. If it’s still undervalued, keep it. Price alone tells you nothing. Price against value tells you everything.
His own record shows both sides of that judgment.
Canadian Natural Resources doubled twice for his subscribers, and he never suggested taking a dollar off the table - because the assets in the ground meant the stock had never fully reflected its value.
Ensco also doubled, and he didn’t sell half there either. Instead he closed out the entire position for a 132% gain when the company made a big acquisition he didn’t like.
Same newsletter, same era, opposite actions. A double was never the signal. The gap between price and value was.
And sometimes the judgment cost him, which he lays out with unusual honesty.
He suggested selling half of GTLS for a 112% gain - the remaining half went on to rise 203%. He sold half of Northwest Pipe at a 120% gain, later recommended selling the rest, and the stock eventually fell far below his exit. Both sells looked reasonable in hindsight. Both left money on the table. The overall investment still booked a healthy 65%.
That’s what selling actually looks like in practice.
Not clean. Not optimised. Defensible.
Not every great investor agreed with the judgment-only approach, and Mayer is fair to the other side.
Peter Cundill, one of the great value investors, liked taking half off the table after a double. But even he learned how expensive discipline can be. Cundill bought Tiffany & Co. at $11 and sold when it hit his valuation estimate of $19 a year later. Six months after that, a bid came in at $50.
That outcome forced a debate inside the Cundill Value Fund board, and the solution they landed on is worth knowing. The fund would automatically sell half of any position that doubled - writing the cost of the remainder down to zero - and the manager then had full discretion over when to sell the balance.
Cundill’s own framing of it might be the best sentence in the whole essay:
“When a stock doubles, sell half - then what you have is a free position. Then it becomes more of an art form. When you sell depends on individual circumstances.”
Mayer’s verdict: reasonable, and a decent way to navigate what he calls the treacherous corridor between fear and greed, between risk and reward. But not automatic. His honest position is simply that full valuations are the moment to at least start thinking about it.
Then comes the case study for the other failure mode.
Holding too long.
The Third Avenue Real Estate Fund owned a big position in Forest City Enterprises. Over the ten years ending September 2008, the fund delivered 16.7% annualised - a terrific run. Over the three years that followed, the stock generated an annualised loss of 29.4%.
The managers, Michael Winer and Jason Wolf, were blunt in their diagnosis: they made a mistake not trimming the position in 2006 and 2007, when the stock traded at all-time highs and it became more difficult to justify the price without stretching their valuation estimates.
Read that again.
They knew the price had run ahead of the value. They held anyway. And a decade of returns evaporated.
Their revised approach, in their words:
“We time our entry and exit from securities positions based upon fundamental valuations, not on expectations of price movements in the market.”
Mayer calls that well said, and essentially how he thinks about the problem.
I see it the same way. Framed like this, selling on valuation isn’t market timing. It’s the same discipline that justified the purchase in the first place, pointed in the other direction.
My favourite part of the essay is the simplest.
In 2005, Mayer spent two hours in Chicago with Ralph Wanger, who had led the Acorn Fund to market-beating returns over a 26-year stretch. Wanger’s sell discipline came down to one sentence: sell when your reason for owning the stock is no longer true.
Mayer says it’s probably his favourite reason to sell, and it’s become mine too.
His examples: if a great balance sheet is one of the reasons for owning something, and management does a deal that wrecks the balance sheet, it’s time to go. If the purchase was made because of a big gap between price and NAV, and that gap closes, it’s at least time to think about it.
What I love about the rule is that it cuts both ways.
A thesis that’s broken at a higher price is still broken - the gain doesn’t redeem it. And a thesis that’s fully intact at a lower price is still intact - the drawdown doesn’t refute it.
The share price is not the argument.
The reason is the argument, and the only question that matters on any given day is whether the reason is still true.
Mayer adds one portfolio-level reason of his own: if he needs to sell something cheap to buy something cheaper, he will. Regular trimming, he finds, is how a portfolio stays concentrated in its best and most convincing ideas.
In my view that constraint is worth more than any checklist - when every new idea has to displace an existing one, only the strongest theses survive contact.
Mayer closes with no formula, and I respect the essay more for it.
There is no magic way to sell. Any sell risks walking away from a future 100-bagger; as Third Avenue showed, complacency has a price too.
The resolution of the reader’s “contradiction” is simply this: enter every investment with a buy-and-hold mentality, hold indefinitely while valuations stay reasonable, and let only two things break the deal - a thesis that’s no longer true, or a price far beyond any reasonable estimate of value. Everything in between is there to be sat through.
Which brings me to the practical part I promised at the start.
The whole framework depends on one thing that sounds trivial and almost never gets done: knowing, precisely, the reason a position exists.
“Sell when the reason is no longer true” is unusable if the reason was never written down. Almost nobody keeps that record. I didn’t for years. Memory quietly rewrites the thesis to fit the price, and the discipline dissolves.
That’s exactly what I’ve been building against all year:
Open any company in the Research Portal and there it is:
The written reason - a condensed, bullet-point thesis, pinned down at the time of coverage, so there’s nothing for memory to rewrite
A live price chart - the price sitting right next to the reasoning, instead of in a separate broker tab
An automated feed of every major filing and press release since coverage began, in chronological order - the evidence trail, ready to be checked against the thesis every time the company reports
Every post I’ve written on the name, time-stamped, so the story’s development is right there in sequence
The question stops being “does this still feel good?” and becomes “does the evidence still match the written reason?”
One of those is a mood. The other is a process.
And alongside the portal sits the MBI Model Portfolio, where I run that process in public - the holds through noise, the trims on valuation, the occasional exit when a reason stops being true - every decision time-stamped, with the reasoning attached.
Both are included in a single paid subscription to Multibagger Ideas.
The yearly plan works out 33% cheaper than paying monthly. And as I’ve said before: subscription prices are going up later this year as the portal keeps growing.
Anyone who subscribes before then locks in today’s price for as long as they stay.
Thanks for reading,
Nico
Disclaimer: The Content does not constitute investment advice, financial advice, trading advice, or any other sort of advice. Nothing in this newsletter should be construed as a personal recommendation or advice to buy, sell, or hold any investment or security. All Content is provided for general informational purposes only and should not be relied upon for making investment decisions. You should not make any investment decision based solely on the Content without first consulting with qualified financial advisors, conducting your own research, and considering your individual financial circumstances, investment objectives, and risk tolerance. To read our full disclaimer, click here.
No posts
Comments
Nothing yet. Say the first thing.
Sign in to join the conversation.