Philip Fisher, one of the most influential figures in modern investing, is best known for his emphasis on investing in quality growth companies and holding them for the long term. His book Common Stocks and Uncommon Profits remains a foundational investment text.
Fisher believed that the key to wealth creation was not constant trading but identifying exceptional businesses and holding them for as long as they continued to grow. His statement that “the best time to sell a stock is almost never” highlights the power of patience and the importance of allowing compounding to work over time.
THE PROBLEM WITH SELLING TOO EARLY
Selling a stock too soon often interrupts the compounding of returns – a critical driver of wealth over the long term. Many investors fall into the trap of locking in small gains prematurely, only to miss out on significant growth as the business continues to thrive.
Example: Apple Inc.
In the early 2000s, Apple was seen as a niche technology company and many investors sold after its initial growth in the iPod era. Those who held on, however, reaped massive returns as the company introduced the iPhone and became a global leader in technology. Selling too early would have meant missing out on the exponential gains of Apple’s transformation.
Short-term thinking often leads investors to focus on daily price fluctuations or quick profits, ignoring the potential for a strong business to deliver sustained growth over decades. Fisher’s advice reminds us to prioritise long-term value over short-term gains.
WHY HOLDING LONG TERM CAN LEAD TO GREATER GAINS
Patience allows great businesses to grow and realise their potential. Strong companies often reinvest profits into innovation, expansion and efficiency, which can compound returns for investors over time. By holding onto these companies, investors benefit from both price appreciation and dividends.
Case studies of long-term holdings
Microsoft: Investors who held Microsoft through its ups and downs in the early 2000s were rewarded as the company reinvented itself through cloud computing and enterprise services. Over decades, its stock has delivered substantial returns.
Amazon: Many early Amazon investors sold during periods of volatility, particularly during the dot-com crash. Those who held on watched the company evolve into one of the most dominant businesses in the world, delivering extraordinary returns in the process.
These examples highlight how holding onto quality businesses through market cycles can pay off in the long run.
WHEN SHOULD YOU CONSIDER SELLING?
While Fisher advocates for rarely selling a stock, there are specific situations where it may be justified:
Fundamental changes in the business: If a company’s competitive advantage erodes or its financial health deteriorates, it may no longer align with the reasons you initially invested. For example, losing market leadership or experiencing consistent declines in profitability could warrant a reassessment.
Business decline: A structural decline in the industry or the company’s inability to adapt to change could signal a need to exit. Examples include companies that failed to transition during the digital revolution, such as Kodak.
Extreme overvaluation: In rare cases, a stock’s price may rise to unsustainable levels that far exceed its intrinsic value. While timing the market is challenging, it may be prudent to take profits when valuations are disconnected from reality.
Personal financial needs: Selling may also be necessary to meet personal financial goals, such as funding a major purchase or covering unexpected expenses. However, this should align with a broader financial plan to avoid disrupting long-term wealth creation.
Fisher believed these situations are exceptions rather than the rule. Most of the time, staying invested in a strong company yields better results than trying to time the market or selling prematurely.
Philip Fisher’s philosophy of ‘almost never’ selling a stock reflects the power of long-term investing and the importance of patience. By holding onto quality companies and allowing them to grow, investors can maximise the benefits of compounding and reap significant rewards over time.
While there are occasions where selling may be necessary, the best strategy for long-term success is to stay invested in strong businesses. Fisher’s wisdom reminds us that enduring wealth is built not through frequent trading but through disciplined, thoughtful investing.
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This Trustnet Learn article was written with assistance from artificial intelligence (AI). For more information, please visit our AI Statement.