“Selling your winners and holding your losers is like cutting the flowers and watering the weeds.”– Peter Lynch.
In one of Berkshire Hathaway’s shareholder letter, Warren Buffett quoted a line from the book “One up on Wall Street” by Peter Lynch. The quote is “Selling your winners and holding your losers is like cutting the flowers and watering the weeds.” This quote seemingly changed my investing life.
Prior to reading that line, I was a trader. I bought shares of some great companies and profited from those transactions. I also bought shares of some not so great companies and held on to them for forever hoping that I will at least breakeven. This is a psychological norm of normal people.
It was so painful to see the money-losing stocks and the psychological need to see them green again kept me miles away from selling those losers. Whereas the imaginary fear of seeing the winners in the red forced me to sell my winners. All I was doing was cutting the flowers and watering the weeds.
For many years, I bought and sold shares of great companies like Amazon, Apple, Nike, Disney, Costco and more. I did profit from them but this phenomenon of mine was so counterproductive. Since reading that quote, I changed my behaviour to water the flowers and cut the weeds. Surely, the results were in my favor (see below).
Seeing my past, there is a ton of things to regret, but we are gradually being better. We spend the majority of our time reading; a lot of reading. There are a ton of things yet to learn. We will share the best working ideas as we learn them. Count us on that.
As our business and psychological knowledge grow, the number of business in our portfolio is shrinking. As we grow a bit smarter every day, we believe in a concentrated portfolio. However, if you are not actively keeping an eye on your investment, diversification should be your only option. We took shelter of diversification for a long time and it worked out pretty alright (Check it out here).