Wait. Hold on a second.
Did he just say he’s never going to sell another stock again?
Yes. That title is correct.
I plan to never sell another stock again.
And I’ll tell you why.
This might be one of the most important articles I’ve ever written as it relates to my growth and evolution as an investor.
However, I’d actually say the impetus for this article relates more to the growth and evolution of my mindset as a person. It’s about what kind of lifestyle I want to live.
Nonetheless, I’ll do my best to keep this article short (although there’s a lot of ground to cover).
That’s because I don’t want it to come across as sanctimonious. I also don’t want anyone to take any of this as a recommendation. Being as open as I have with my finances over the years has sometimes confused people into thinking that my writing should be construed as financial advice. That’s just not the case. So please don’t read this and think that I’m telling you that you also should also never sell any of your stocks. You should manage your finances and portfolio in a way that you think is best.
I’ve only ever aimed to show my personal journey to FIRE, as well as my post-FIRE lifestyle, in real-time.
That’s because I hope it provides insight into a unique take on things – there are few people in their 30s, FIRE, living abroad in Thailand full time. I’d know because I haven’t run into any – and I’ve been looking.
I also aim to inspire others by showing them what’s possible.
Well, a major function of showing possibilities, obviously, is the finances.
And so along with the journey toward a better, happier, smarter, and freer person comes the journey toward a better, happier, smarter and freer investor. The latter is a big part of the former, especially when finances are so intertwined with the FIRE lifestyle and our ability to be free to improve ourselves and the world around us.
My experience with money management, wealth building, and investing over almost nine years now has taught me a lot about what kind of investor I want to be. Indeed, what kind of person I want to be.
And the investor I want to be is, one who never sells stocks.
I’m going to break that down.
It’s important to recognize, before I begin, that the rationale here is largely driven by a thoughtfulness regarding what kind of life I want to live. This article is written largely from a lifestyle standpoint, rather than solely an investment performance standpoint. For me, “performance” is more about my life and happiness than my money.
This post will be great to refer back on if readers ask about the complete lack of stock sales in any future FIRE Fund updates. Any questions about my interest in selling stock X or Y can now be easily answered by referencing this post.
Keep in mind, this article is basically the “capstone” in a long-tail evolution that’s been playing out for years. It’s not a sudden 180-degree turn. I’ve been a long-term, buy-and-hold investor since Day 1. It’s not like I’ve ever attempted to time the market or trade stocks.
For reference, my portfolio turnover has been steadily dropping as the portfolio has grown while I’ve simultaneously sold less and less stocks. Turnover for 2018 is something around 2%. So to go from 2% to 0% isn’t really much of a stretch for me.
This decision’s rationale will be broken down into seven separate but complementary and holistic concepts that I’ve been building on over the years, which have all now combined to culminate into this conclusion.
Not worrying about selling gets me closer to the wonderful lifestyle I set out to create.
The main point of being FIRE in the first place is to be free.
FIRE, to me, is all about enjoying a carefree, easy, happy lifestyle. So to constantly be thinking/worrying about money, and sitting there and managing your finances all the time, is basically antithetical to that.
You’re chained to money in that scenario. Maybe you’re free of a job, but to be not free of money itself is almost as bad. Trading one master for another doesn’t strike me as an improvement.
I rarely think about money or stocks, honestly. But a disproportionate percentage of the thoughts that have occurred over the years have no doubt been allocated to the hemming and hawing that’s involved when debating a stock sale. Getting rid of that is addition by way of subtraction, making my life better by getting rid of one more thing I don’t need.
One thing I love about being a dividend growth investor is how easy and automated it really is. This is especially true once you’re ready to live off of your dividends.
I’m paid just to exist. When I wake up, fresh dividends are in my account. The (growing) dividends roll in without any input on my part.
It’s a dividend compounding machine that requires no further action on my part.
And so it’s unnecessary and potentially harmful for me to artificially and forcefully add input into this equation by tinkering with a finely-tuned machine that works all by itself. I’m creating “busy work” in this scenario.
If my stocks could talk, they’d tell me: “Look, Jason. Appreciate everything you’ve done. But we’ve got it from here. Now go and enjoy your life.”
Thinking Like An Owner, Not A Trader
Moreover, I’ve long thought as an owner, not a trader. Not selling at all moves me even closer to being an owner.
I mean, if I were to buy a business outright, I wouldn’t then be thinking about selling it. I’d be buying it to keep it forever.
And if I owned a collection of businesses outright, I’d be more than happy to let those businesses go to bat for me, make me money, and send me my share of profit (which is what my growing dividend payments essentially are). There would be no point to thinking about complicating that.
My portfolio is nothing more than a scaled-down version of all of this. Stocks aren’t just pieces of paper. They’re slivers of real businesses.
Likewise, if someone were to sell me a stake in a private business out there somewhere, I’d be buying that stake with the intention of basically keeping it forever.
And that would be made easier when you don’t have stock prices flashing at you every day. No “crazy neighbor”, as Benjamin Graham would call Mr. Market, knocking on your door every day to offer you money for your stake.
Well, that intention to keep forever shouldn’t be different at all, even when that neighbor incessantly bangs on your door. Just because there’s knocking, it doesn’t mean you have to answer. You can just ignore the knocking.
Well, it would never be easier to ignore that knocking than when the thought of selling never enters your mind because you’ve “shut the door” on that option. Bye, neighbor!
There are a few high-quality dividend growth stocks I’ve sold over the years, often due to valuation concerns. But these were really great businesses that I should have been happy to sit on my hands with and remain a partial long-term owner.
Tiffany & Co. (TIF) is a great example of that.
That’s the kind of business you buy cheap and keep. It’s dumb to do anything else. But being dumb has made me smarter, which is great.
I would love, going forward, to fix those mistakes of commission by once more (when the opportunities present themselves) accumulating stock in those great businesses I once owned a slice of. Next time around, though, I won’t let them go.
A Portfolio Is Like A Bar Of Soap
There’s an old saying that has never meant more to me than it does today:
“A portfolio is like a bar of soap. The more you handle it, the less of it you have in the end.”
Well, I think it’s time to take that idea to the extreme end of the scale.
Why not have all of the soap? Why not just avoid handling the portfolio at all?
If my portfolio really is like a bar of soap, I’d rather just keep that thing as intact and as fresh as possible.
The more my human nature enters the picture, the greater the odds are of a contamination of my germs and biases.
Great businesses should, and very likely will, go on to continue being great. I don’t need to handle that.
In addition, the handling of that bar of soap requires time, energy, and focus. All are in short supply. And there’s an always an opportunity cost to consider. Said another way, I’d just rather allocate all of that toward more meaningful pursuits than thinking about whether or not to sell Stock X.
No “Get Out Of Jail Free Card”
If I’m being honest about things, buying stocks has always come with the thought in the back of my mind that I can sell if things go awry. There’s a “get out of jail free card” that I can play at any time.
And I’m not sure that doesn’t at least partly corrupt the buying process.
Knowing that I’m “burning the ships and storming the islands” without that “get out of jail free card” means I have to be far more thoughtful and careful on the buying side.
If I’m planning on truly holding a stock forever, then I should be pretty well sure about its prospects for as far as the eye can see.
While I’ve rarely sold stocks very often, and while many of the few sales I’ve committed (General Electric Company (GE) comes to mind as a recent example) have gone on to perform relatively poorly, and while I always stayed in the market (quickly reinvesting any capital from a sale), the real issue is that a large number of my sales should have never occurred in the first place. That’s because the buy should have never occurred in the first place.
Eliminating the possibility of sales means I have to be that much more stringent when I’m buying.
Committing to never selling reduces friction.
No additional potential taxes to worry about. And although I’m not paying commission fees right now, there’s always a chance that could change way down the road. Less paperwork, less transactions, less headaches.
Less friction means more smooth sailing – across the portfolio and my life as a whole.
It’s also not lost on me that all of these companies are often doing buying and selling, too. They’re frequently reshuffling their product/service portfolios, including M&A.
So there’s already a lot of friction by the very nature of companies being companies.
I don’t need to add to the chaos.
Getting The Best Out Of Index Investing
Some people might think I’m not a fan of index investing.
That’s actually not the case at all.
I see three basic but fantastic benefits to it: low costs, broad diversification, and limited turnover.
It’s that first point in particular that often gets actively-managed funds in trouble. They might have very good performance, but the fees (which work against the compounding) add up and mitigate the performance at the individual investor’s level.
As such, most people are better off just buying a broad-based index fund and going about their life. Indeed, “going about my life” is pretty much what this article is mostly about.
However, one has to keep in mind that an index fund is just a collection of stocks. It’s not magic. Buying the S&P 500 is pretty much the same thing as someone else buying all ~500 stocks simultaneously, in the same exact weighting. Furthermore, these ~500 stocks, along with the weighting, are selected by a committee of people. It’s not as “passive” as some would like to think.
All that said, I think index investing is great. It’s not perfect. But it’s great. It’s just that I know I can accomplish all three aforementioned benefits, without the associated drawbacks (lower yield, exposure to lower-quality companies, etc.).
So what I do is take advantage of those benefits.
My portfolio is very diversified. I pay no commission fees. And there’s extremely limited turnover.
But I avoid the drawbacks.
This decision to avoid all selling in the future takes this concept and supercharges it. Limited turnover now goes to no turnover. I’m still paying no fees (which beats the vast majority of funds). And I’m pretty close to being as broadly diversified as most of the major index funds (keeping in mind that the top ~120 stocks – approximately the size of my portfolio – account for 70% of the S&P 500’s capitalization).
But my portfolio doesn’t feature relatively low-quality companies. And the yield is about twice what the S&P 500 offers right now. That means I can live off of the income component only without selling equity (which is what I’m talking about here).
The ironic thing is, it’s precisely because I’m not buying an index fund that I can actually follow a “never sell” rule. The S&P 500, which is the most followed index out there, intermittently sells positions and replaces itself. And investors in it often have to sell off equity (albeit indiscriminately) in order to fund some of their expenses in retirement (due to the low yield). That’s before factoring in the investors out there who still time the market with their funds, buying high and selling low (which we’ll talk about in the next point). Funds are not immune to human psychology.
I’m taking the idea of buying and holding an index fund to the next level. This is actually following through with “buy and hold”. It takes advantage of index investing’s biggest benefits and avoiding its biggest drawbacks.
I’d usually say something like “last but not least…” here.
Except that’s not the case.
I’m purposely bringing up performance last because that’s where it’s at in terms of priority for me. As noted earlier, I’m more concerned with “life performance” than “investment performance”. I value time much more than money, which runs counter to where almost everyone I’ve ever met and talked to are at. Money isn’t my master. As such, I’m a very happy person. Most other people are not.
Nonetheless, it strikes me as highly likely that the portfolio will perform better with this approach, which is icing on the cake.
There have been multiple research reports that have come out proving that the S&P 500 itself would have performed better if it hadn’t changed its rules, sold stocks, etc. Since the S&P 500’s founding in 1957, almost 1,000 companies have been removed from the S&P 500. According to Jeremy Siegel:
Those who bought the original 500 firms and never sold any of them outperformed not only the world’s most famous benchmark stock index but also the performance of most money managers and actively managed equity funds.
The difference in performance between keeping the original 500 firms and the current S&P 500, from the index’s founding in 1957 through December 2003, was 100 basis points per year (11.3% per year versus 10.3% per year). It’s significant.
Index investing is still, almost always, a great way to go about investing. It’s just that (as I mentioned earlier) it’s not as “passive” as one might be led to believe, and the S&P 500 would be better off if it, too, had been more passive over the years.
A great example of truly sitting on one’s hands is Voya Corporate Leaders Trust (LEXCX), which is a trust that truly never sells stocks. It can trace its roots back to the 1930s. Its current holdings are all direct descendants of the holdings it originally chose when the trust was established all the way back in 1935.
Perhaps not surprisingly, it’s performed quite well over the last 80 or so years, handily beating the broader market.
Lastly, just to show how disastrous needlessly handling a bar of soap can be – even, or especially, a particularly amazing bar of soap – let’s talk about the Fidelity Magellan Fund (FMAGX).
Peter Lynch famously ran the Fund from 1977-1990, delivering an astounding 29% average annual return during that time.
However, Fidelity found, through its own research, the average investor in the Magellan Fund actually lost money during Lynch’s 13-year tenure.
That. Is. Insane.
This happened because they were selling during times of poor performance, and then they were coming back in after it had performed well.
Said another way, they were abundantly handling a bar of soap that just didn’t need to be handled. Again, a fund isn’t immune to poor human behavior. “Just buy the S&P 500 and hold it.” Sure, also “don’t eat that slice of cake.” Things are easier said than done.
An intelligent investor is an unemotional investor. I can’t think of a better way to limit the potential for excess emotions than to eliminate the emotions that are involved in the yes/no dynamic that occurs when contemplating a sale.
I’m actually relieved to write this article. It’s a weight off of my shoulders to not have to worry about managing the portfolio on the sell side. No more “breaking the piggy bank”.
This gets me closer to the lifestyle I set out to create years ago when I first imagined what FIRE would be all about.
Of course, I do still intermittently buy stocks.
Since I’m already FIRE, however, I’m no longer aggressively buying stocks (i.e., investing thousands of dollars per month).
But the additional flexibility and freedom that this added passive dividend income (via high-quality dividend growth stock purchases) brings to my life is much appreciated. The organic dividend growth (via the dividend increases the companies I’m invested in are regularly announcing) are doing most of the heavy lifting these days, though. And that’s a wonderful position be in.
Furthermore, I do still enjoy being an investor in terms of seeing what my businesses are up to (reading news, browsing annual reports, etc.), as well as finding great businesses that I don’t yet own. Even though I’m invested in over 100 companies, I acknowledge there are many, many, many truly wonderful businesses that I don’t yet own a slice of. And I certainly find it interesting and worthwhile to change that, slowly, over time.
There is a caveat to all of this, however.
I do reserve the right to sell any stock at any time, regardless of any designs I currently have. I’m not held to a contract or anything here. Nobody made me write this article. I’m not managing anyone’s money but my own.
But the only reason I could imagine citing for such an action would be a need to suddenly raise a large amount of capital (for an emergency, illness, etc.). Otherwise, I won’t be selling stocks moving forward.
Finally, M&A action (such as partial or entire buyouts) will surely continue to occur without my input, but I won’t act on any of that outside of investing any capital remaining from forced sales.
I’ll quickly conclude by once more noting that this is not investment advice. I’m not recommending anyone else do as I do, nor have I ever recommended anyone to do as I’ve done.
All I’ve ever wanted to do with my content and message is share, help, inspire, create, transparently keep myself accountable, and maybe make the world a slightly better place.
Full disclosure: I have no positions in any of the aforementioned stocks or funds.
Did you enjoy the article? What are your thoughts?
Thanks for reading.
Image courtesy of: Sira Anamwong at FreeDigitalPhotos.net.
P.S. If you’d like to achieve FIRE, regardless of how often you plan to sell your stocks, check out some fantastic tools and services that I personally used on my way to becoming financially free at just 33!