When Should I Sell a Stock That Has Doubled?

The urge to sell a stock that has doubled is one of the most powerful impulses in investing. It feels responsible, even conservative. But the greatest investors in history would tell you that this urge is often your worst enemy, and that selling winners too early is one of the most expensive mistakes an investor can make.

Warren Buffett's approach to this question is unambiguous: never sell a great business simply because its price has gone up. Buffett bought Coca-Cola stock in 1988 for approximately $1 billion. It doubled, then tripled, then quadrupled. As of today, those shares are worth over $25 billion, and they generate over $700 million in annual dividends alone. If Buffett had sold when the stock doubled, he would have captured a $1 billion profit but lost $24 billion in future gains. The cost of selling winners early is almost always larger than investors realize.

Peter Lynch coined the term "tenbagger" for stocks that increase ten times in value, and he observed that his biggest investing mistakes were selling tenbaggers too early, not holding losers too long. Lynch calculated that if you owned a portfolio of ten stocks and nine went to zero while one became a tenbagger, you would still break even. The math of winners and losers is profoundly asymmetric -- your upside is unlimited while your downside is limited to your investment.

Charlie Munger provides the framework: the decision to sell should never be based on what the stock has done, but on what the business will do. A stock that has doubled because the business has genuinely improved -- revenue growing, margins expanding, competitive position strengthening -- may still be undervalued. A stock that has doubled purely on hype with no fundamental improvement is a legitimate sell candidate.

The critical question is not "has it doubled?" but "is it still undervalued relative to its future earnings power?" If the business is growing earnings at 15-20% annually, a stock that doubled over three years may still be reasonably priced because the underlying value has also doubled. Price appreciation that merely keeps pace with value creation is not a reason to sell.

Howard Marks warns against the "anchoring" bias where investors fixate on their purchase price. Your purchase price is irrelevant to the investment's future prospects. The stock does not know what you paid for it. Every day you hold a stock is a decision to buy it at today's price. The only question that matters is: would you buy this stock today at the current price?

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The Bottom Line

The hardest lesson in investing is learning to let your winners run. The stocks that generate life-changing wealth are the ones you hold for decades, not the ones you sell after a quick double.