Mohnish, in The Dhandho Investor, you have a chapter on the art of selling, called “Abhimanyu’s Dilemma.” Could you reflect a bit on that and perhaps how you might update it given another dozen years of experience?
Yeah, selling is always a lot more complicated than buying. And it’s similar to investing in the sense that it’s relatively easy for us to buy stocks.
And when things start unfolding about a business somewhat different than what we may have predicted — like you know we have this question only about retailers or package goods companies — you know, we may have had certain models in our mind, and then we seeing actual reality in the ground is completely different.
You know then, of course, if you’re below your cost basis, then the question is do you want to wait until you break even, you know break till you make some money, or do you want to just cut your losses and run? These become kind of challenging and difficult questions to answer.
So selling is always a lot harder than buying. And it’s more complicated because we don’t have crystal balls that tell us what markets are going to do or what individual businesses are going to do. And so that’s why I use that analogy.
So it’s very important when we — before we buy a stock,to be able to write down maybe in less than four or five sentences why we are buying it? And under what circumstances and pricing we would be selling it? Just so that we have that clarity very well etched in our brains.
Before you buy a stock, have a habit of writing down the reasons why you are buying it and under what circumstances and pricing you would sell it.