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🚫 Wednesday Investing Advice: Never Sell?

A legendary study of Fidelity client portfolios found that between 2003 and 2013, the best-performing investors were the ones who never traded — “Fidelity’s most successful investors were already dead,” The Motley Fool concluded.

Others reported the study as saying that the investors were not in fact dead, but that the accounts were dormant and possibly abandoned.

As someone who’s been investing long enough to regret having sold Broadcom in 2002, Facebook in 2016 and Nvidia in 2020, this study strikes a chord with me.

Sadly, there is no such study.

The dead investors are fake news, a legend propagated by word of mouth on podcasts that were then reported in articles that then got referenced in podcasts (until finally debunked in truth-defending newsletters).

The interesting thing, though, is why some stories persist and, in this case, I think it may be because the story is more or less true.

This is difficult to prove, because everyone’s “never sell” investment horizon is different — we won’t all be investing as long as the spry nonagenarian Warren Buffett.

Nor do most of us have a never-ending influx of insurance premiums that perpetually need to be invested, like Buffett has had for decades.

But several prominent investors think we should pretend that we do.

“The single greatest edge an investor can have is a long-term orientation,” according to the great value investor Seth Klarman.

Tech investor Gavin Baker believes that “letting winners run is the most common shared trait amongst great investors.”

And the equities strategist during my time at Citibank, Robert Buckland, who we all wanted to hear from every day, told us we should only be listening to him once a year.

Believers in the mythical Fidelity study will think that’s still once a year too often, although that is mostly an article of faith — the supporting evidence for the never-sell philosophy remains anecdotal.

The best supportive anecdata we have is the astounding outperformance of Berkshire Hathaway shares, which could fall 99.4% tomorrow and still have outperformed the S&P 500 since 1965, thanks mostly to Buffett’s preferred holding period (forever).

But there’s evidence that this might work for regular people, too: In a 1984 essay, The Coffee Can Portfolio, investment advisor George Kirby reported that his firm’s best-performing client employed a novel strategy of following the firm’s advice but paying “no attention whatsoever to the sale recommendations.”

That strategy left his estate with a surprisingly large and highly concentrated investment portfolio when he passed away, still having never sold.

(His biggest winner? “A zillion” shares of Xerox.)

You can’t take it with you, of course, so the investor didn’t get to enjoy the fruits of his never-sell strategy.

But this might change!

Zillionaire tech moguls are lobbying for the right to remain the legal owners of their investments after they die so that they’ll still be zillionaires when technology advances enough to bring their cryogenically preserved bodies back to life (Austin Powers style).

I hope it happens because then we’d finally be able to quantify the merits of never-sell investing.

If so, dead vs. living investors could be the 21st-century version of dart-throwing monkeys vs. professional investment managers (which was decided in favor of the monkeys, of course).

Buffett, Klarman, Baker and Kirby would bet on the (temporarily) deceased investors, I’m sure.

But I’m not yet totally convinced.

The coffee-can guy, for example, was only such an investing success because he died long enough before Xerox did.

I’m not sure the rest of us can count on similarly fortuitous timing — especially those of us who are investing in crypto.

Weekend at Bernie’s investing

Bitcoin’s HODL culture is spiritually aligned with the never-sell philosophy of investing, of course.

But the rest of crypto has long since succumbed to the animal spirits that make us want to do something — anything! — even when we clearly should be doing nothing, as John Maynard Keynes explained way back in 1936:

“Our decisions to do something positive, can only be taken as the result of animal spirits — a spontaneous urge to action rather than inaction.”

Crypto, being the first-ever 24/7 financial market, allows us to scratch the unhealthy itch to “do something” with our investments like never before.

This is usually framed as a good thing: Crypto is “democratizing” investing by bringing liquidity to VC-like investments, which have historically only been available to accredited investors in unlisted, untradeable vehicles.

But non-liquidity has its merits as well — in fact, a large part of investors’ attraction to VC funds is that they can’t sell.

This is why valuations in private equity and real estate are often higher than what they’d be in publicly listed vehicles — inventors are happy to pay a non-liquidity premium to stop them from giving in to their animal spirits and selling too early.

In crypto, there’s nothing to stop us from selling too early — or buying too high.

But we should try to resist the urge.

If you’re buying a crypto token because you think it has 100x upside, you should consider doing so in a size modest enough that you’ll be able to resist the urge to sell for a 100% profit — or a 90% loss.

We’re going to have a lot of those 90% losers, so we’re going to need some very big winners to offset them. And the only way to have very big winners is to not sell them when they’re just regular-sized winners.

The only way to do that is to not look at your portfolio too often.

It may be unrealistic to follow Robert Buckland’s advice to check your investments once a year — but you should probably invest as if you’re going to check them once a year.

Or, better yet, invest as if you’re dead.

― Byron Gilliam

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