🔎Never sell.
An ode to the greatest superpower in investing and what diversification has to do with it.
TLDR Summary
Buying the right stocks at the right time is hard. But selling them is even harder. You don’t just have to form an opinion on a stock at a given point in time. You are also haunted by the past. You are anchored to a random entry price from months or years ago which brings greed and fear into the equation.
To the extent that circumstances allow for it, selling should in my opinion be entirely removed from an investment process. Ideally, an investor should merely worry about buying into viable companies during times when they are neglected by others. Buy the dip. Unless everyone else is doing it.
There are several ways how to incentivize ‘hodling’. You could buy an asset that is naturally hard to liquidate. A rental property for example. Or you can diversify. The smaller each position in your portfolio, the more likely will you be able to bear its potential failure.
An investor following this approach can only reap the benefits of his investment success by receiving dividends. However, getting dividends immediately should not be the primary goal of an investment. Many pure dividend stocks underperform because they are owned by investors who are hiding from volatility. Instead, the stock must be analyzed with respect to its potential to pay large dividends in the future, even if it doesn’t yet.
