Common Stocks Chapter 3: When to Buy and Sell

"If the job has been correctly done when a common stock is purchased, the time to sell it is—almost never." — Philip Fisher

The Investment Context

Fisher's approach to buying and selling is radically different from traditional trading.

When to Buy: Fisher advocates buying a great company when it faces a temporary, solvable crisis that depresses its stock price, or when the broader market is in a panic. Furthermore, he explicitly states that investors should ignore macroeconomic forecasts (recession predictions, interest rate fears) because even experts cannot predict them consistently.

When to Sell: Fisher famously stated that if you have done your scuttlebutt correctly and found a truly great company, you should almost never sell. He identifies only three valid reasons to sell a stock: 1. You made a mistake in your initial assessment, and the company is not as good as you thought. 2. The company's fundamentals have permanently deteriorated (it no longer meets the 15 points). 3. You have found a definitively better opportunity.

The Wall Street Translation

Holding a stock that goes up 1,000% is mathematically necessary to build massive wealth, but it is psychologically excruciating. Fisher's rules are designed to prevent you from getting in your own way.

1. The Valuation Trap: Value investors often sell a great company because the Price-to-Earnings (P/E) ratio gets "too high." Fisher argues that if the earnings are going to compound at 20% a year for a decade, the current P/E ratio is practically irrelevant. You are selling a golden goose because it looks expensive today.
2. The Macro Distraction: Every year, brilliant economists predict a recession. If you sell your best companies out of macro fear, you will incur massive tax hits and inevitably miss the compounding.
3. The "Take Profit" Fallacy: Wall Street loves the phrase "you never go broke taking a profit." Fisher would argue that you never get rich taking small profits, either. Cutting your winners to secure a 30% gain ensures you will never experience a 10-bagger (a 1,000% gain).

Actionable Trading Rules

1. Ignore the Noise: Stop trading your portfolio based on the Federal Reserve, CPI data, or geopolitical headlines. Focus 100% of your energy on the business execution of the companies you own.
2. Buy the Temporary Crisis: When a great company reports a bad quarter due to a supply chain issue, a delayed product launch, or a one-time write-off, the market will panic. This is your entry point.
3. Let Winners Run: If the business is executing flawlessly, the margins are expanding, and the moat is widening, do not sell the stock just because the price has doubled. Let the magic of compounding work.