Despite having my annual 'Canadian Companies that Provide Dividend Growth Guidance' post almost complete, I decided to switch course and post about a tweet that has been caught in my mind for the past two weeks.
Before explaining the benefits and drawbacks of never selling a stock holding, I can't recommend highly enough following The Conservative Income Investor's blog, twitter and Seeking Alpha page. I'd go as far as to guess that subscribing to Tim's Patreon would likely pay literal and figurative dividends.
The most obvious benefit of never selling a stock is nicely summed up in Tim's tweet: the lost return on a potential winner could not only be devastating for your portfolio's prospects, it could be an error of commission for which you never forgive yourself. Having sold a position in Home Depot in 2012 for $63 (representing an ~150% gain after five years of holding the company), it's been heart-breaking to see it march up to the current price of $415. Had I not sold, Home Depot would represent my largest position, and would have been a steady gainer and dividend grower over the past nine years. Sadly, I've sold many other companies that went on to produce huge gains for more patient investors than me.
A couple other benefits that come to mind if one chooses not to sell any holdings are the time savings from not worry about when to sell, no taxes would be due if investments are held outside of registered accounts, no transaction costs from selling, and having a more diversified portfolio assuming you continue to buy shares in other companies.
The biggest drawback I think to following Tim's advice is that your portfolio holdings would balloon to a number that would make it difficult, if not impossible, to monitor your various investments. Having cut my number of holdings down from 40 to 37 in the past year, I still hold too many positions to monitor each effectively. The other material downside I see to never selling is continuing to hold companies that changed their strategic direction to something you don't support or have an opinion on. As an example, if I continue to hold the shares of Orion Office REIT that were spun off after the VREIT and Realty Income merger, I'd be making a bet on the recovery of the commercial office space market in the United States, something I feel particularly ill-equipped to do.
Other drawbacks in never selling shares is companies you hold include not being able to take advantage of tax loss harvesting (assuming positions are held in unregistered accounts), having position sizes that don't reflect your current convictions, and potentially lacking liquidity to take advantage of market displacements.
Although I haven't come to any conclusions as to whether I'll start following the "never sell" advice from the Conservative Income Investor's tweet, it's something I'll continue given the pain and lost return of selling a big winner is difficult to overcome.