Common Stocks and Uncommon Profits and Other Writings

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When to Sell
And When Not To 
T
here are many good reasons why an investor might decide to sell 
common stocks. He may want to build a new home or finance his
son in a business. Any one of a number of similar reasons can, from
the standpoint of happy living, make selling common stocks sensible. 
This type of selling, however, is personal rather than financial in its 
motive. As such it is well beyond the scope of this book. These com-
ments are only designed to cover that type of selling that is motivated 
by a single objective—obtaining the greatest total dollar benefit from
the investment dollars available. 
I believe there are three reasons, and three reasons only, for the sale 
of any common stock which has been originally selected according to 
the investment principles already discussed. The first of these reasons 
should be obvious to anyone. This is when a mistake has been made
in the original purchase and it becomes increasingly clear that the fac-
tual background of the particular company is, by a significant margin,
less favorable than originally believed. The proper handling of this 
type of situation is largely a matter of emotional self-control. To some 
degree it also depends upon the investor’s ability to be honest with
himself. 

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Two of the important characteristics of common stock investment 
are the large profits that can come with proper handling, and the high 
degree of skill, knowledge, and judgment required for such proper han-
dling. Since the process of obtaining these almost fantastic profits is so 
complex, it is not surprising that a certain percentage of errors in pur- 
chasing are sure to occur. Fortunately the long-range profits from really 
good common stocks should more than balance the losses from a nor-
mal percentage of such mistakes. They should leave a tremendous mar-
gin of gain as well. This is particularly true if the mistake is recognized 
quickly. When this happens, losses, if any, should be far smaller than if 
the stock bought in error had been held for a long period of time. Even 
more important, the funds tied up in the undesirable situation are freed 
to be used for something else which, if properly selected, should pro- 
duce substantial gains. 
However, there is a complicating factor that makes the handling of 
investment mistakes more difficult. This is the ego in each of us. None 
of us likes to admit to himself that he has been wrong. If we have made 
a mistake in buying a stock but can sell the stock at a small profit, we 
have somehow lost any sense of having been foolish. On the other hand, 
if we sell at a small loss we are quite unhappy about the whole matter. 
This reaction, while completely natural and normal, is probably one of 
the most dangerous in which we can indulge ourselves in the entire 
investment process. More money has probably been lost by investors 
holding a stock they really did not want until they could “at least come 
out even” than from any other single reason. If to these actual losses are
added the profits that might have been made through the proper rein- 
vestment of these funds if such reinvestment had been made when the 
mistake was first realized, the cost of self-indulgence becomes truly
tremendous. 
Furthermore this dislike of taking a loss, even a small loss, is just as 
illogical as it is natural. If the real object of common stock investment is 
the making of a gain of a great many hundreds per cent over a period 
of years, the difference between, say, a 20 per cent loss or a 5 per cent 
profit becomes a comparatively insignificant matter. What matters is not 
whether a loss occasionally occurs. What does matter is whether worth-
while profits so often fail to materialize that the skill of the investor or 
his advisor in handling investments must be questioned. 
While losses should never cause strong self-disgust or emotional 
upset, neither should they be passed over lightly. They should always

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