Charlie Munger is famous for owning a few stocks, then holding onto them for as long as possible, but is this the right strategy for you?
"If The Job has been correctly done when a common stock is purchased, the time to sell is — almost never." - Phil Fisher
There is a school of thought in many investment circles that you should never sell a stock once you own it. If you are in this school, read on, because this decision alone, could be the difference between beating the market or lagging the market.
The "never sell" mindset can easily be taken out of context and cause an investor to lose a tonne of money.
Let's say it's the year 2000. Rick loves photography, and has always been a fan of Kodak. He decides that the Eastman Kodak looks like a great company, he'll buy it (at $70) and forget about for the next decade because the "company just can't be beat". Fast forward just 11 years and the stock has declined to $2 bucks, a ~97% decline.
You don't want to be this person.
If you want to be the type of investor who truly never has to sell, you must follow Charlie Munger's lessons he learned from Phil Fisher:
"The basic idea of that it was hard to find good stocks, and it was hard to find good investments, [and] that you wanted to be in good investments. And therefore, you just have to find a few of them that you knew a lot about, and concentrate on those." - Charlie Munger
In this context, you must put in so much work into your analysis, that the company has a very low probability of declining in intrinsic value. Here are Charlie's best investments:
Berkshire Hathaway
Costco
Himalaya Capital Fund
He's been able to hold these simply because they've had a long runway of compounding intrinsic value.
So if you want to hold companies for the long-term while reducing risk, you must be on top of your investments fundamentals:
Is intrinsic value increasing or decreasing?
Is their moat getting stronger or weaker?
If you can answer those questions with some degree of accuracy, you'll know when it's time to hold or sell a stock.