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Don’t Sell Stocks for the Wrong Reasons: Lessons from Losses and Long-Term Investing
On June 30, 2025, Larissa Fernand, writing for Morningstar India, cautioned investors against selling stocks due to temporary losses, stressing that losses do not equate to mistakes. Using historical data and insights from Thomas Phelps’ 1972 book 100 to 1 in the Stock Market, she advocates focusing on a company’s fundamentals and earnings power over short-term price volatility to achieve long-term gains.
Key Investment Lessons
- Losses vs. Mistakes: Fernand highlights that a stock’s temporary price decline, as seen in Vivek’s 2018 X post on RIL (2.4% CAGR 2008–18), SBI (1.02%), and ABB (-1.89%), does not indicate a poor investment choice. From 2018–25, these stocks rebounded with CAGRs of 18%, 19%, and 27%, respectively, rewarding patient investors.
- Focus on Fundamentals: Drawing on Phelps’ analysis of Pfizer (1947–67), where sales grew 6.7x, earnings 4.7x, and dividends 3.5x despite price volatility, Fernand advises prioritizing earnings power and business quality over short-term price movements. Selling Pfizer due to a five-year underperformance would have missed its 25x gain over 20 years.
- Avoid Emotional Selling: Phelps’ advice, echoed by Fernand, warns against selling for non-investment reasons (e.g., high stock price, stagnation, or new competition) without thorough research. Emotional decisions driven by price highs or lows often lead to costly errors, as illustrated by Karl Pettit’s 1925 sale of IBM shares, missing out on billions in potential gains.
Practical Investment Strategies
- Buy Right, Hold Smart: Fernand advocates a disciplined buy-and-hold approach, but not blindly. Investors should continuously monitor a company’s earnings growth and competitive position, as past performance (e.g., 10–15 years of growth) does not guarantee future success.
- Ignore Market Timing: More wealth is created through careful stock selection than predicting market direction. Investors should focus on business fundamentals rather than market trends.
- Cost Averaging Opportunity: Temporary price declines offer chances to average down the purchase cost if the business remains fundamentally sound, enhancing long-term returns.
Risks and Considerations
- Risks: Blindly holding stocks without vigilance can lead to losses if a company’s fundamentals deteriorate. Overreacting to short-term price drops or external factors like new management risks premature selling, as seen in Pettit’s IBM example.
- Opportunities: Staying invested in fundamentally strong companies during price dips, as with RIL, SBI, and ABB, can yield significant returns. A focus on earnings power and a margin of safety at purchase mitigates risks and maximizes long-term gains.
Conclusion
Larissa Fernand’s analysis underscores that temporary stock losses should not prompt sales unless driven by fundamental flaws in the investment. By focusing on earnings power, avoiding emotional decisions, and practicing vigilant buy-and-hold strategies, investors can capitalize on long-term growth opportunities. Historical examples like Pfizer and IBM highlight the cost of selling too soon, reinforcing the need for discipline and research to achieve substantial returns in stock investing.