Selling is more important than buying. Only after you have sold a business, you have locked in your profits. Every investor must have plans when to sell off his business at the very moment he’s purchasing it.
My investing philosophy is always evolving as I receive new insights from books and the Internet. Previously, I sold my holdings whenever the intrinsic value was reached. That was what I did for Raffles Medical (back in 2009) and for Thomson Medical (in Aug 2010 when I sold off half my stake). On hindsight, even though the price rose a lot, I feel that I should have kept the stocks as the fundamentals were still intact.
So, currently, when do I sell a business after buying it?
If stock has risen much more the intrinsic value calculated, I will still keep it if the fundamentals are still solid and intact. I will only sell such a stock if the fundamentals turn for the worst, management is screwing things up or if the market is getting very overheated and a bubble is forming. I will sell it off as there is no value left in the business according to my intrinsic value calculation. I can use the funds to buy other undervalued companies during a crisis. I can even buy the same company if the price falls much more than the intrinsic value with a margin of safety.
If a particular stock has not yet reached the intrinsic value, I will keep it even if there’s going to be a recession or market bubble. I can buy more of the business at a cheaper price when the prices fall for the short-term out of fear. I will never sell such a business to “buy it back at a lower price” as one cannot time the market accurately. Not even the best of the best economists can do so.
When I buy a business, my aim is to keep it for the long-term (5-10 years or more), provided the business fundamentals are intact so that the compounding effect can take place. Einstein has once said that compound interest is the eighth wonder of the world and I’m a firm believer in it.