Never Sell: From Pulak Prasad’s book

In my last month’s post, I might have given the wrong impression that I am getting out of the stock market entirely. Indeed, I did sell off some stocks to replenish my dry powder cash bucket, as I wrote then. But that was the extent of my selling. Dry powder cash is only a small portion (about 17% today) of my portfolio. Long time readers would know that I don’t try to time the market. I don’t liquidate my long-held stock positions just because the market is at an all-time high. I am a long-term minded investor who considers investing an infinite game.

I just finished reading an excellent book whose author also thinks along the same lines. The book is titled What I Learned About Investing From Darwin. The writer himself is an active fund manager, though not well known in North America. He is Pulak Prasad, and he is mostly active in the Indian stock market.

It is a highly readable book by someone who also believes in very long-term stock ownerships. I found myself nodding to most of his investing principles. In many ways, he is indeed a kindred spirit. There were many notable ideas covered in the book but one especially stood out for me: He never sells due to high valuation.

He carefully picks durable high-quality businesses to invest in. And just keep holding on to them through ups and downs.  He wrote that he sells for only these three conditions:

• A decline in governance,
• Egregiously wrong capital allocation, or
• Irreparable damage to the business

Chapter 10 of the book (Where Are The Rabbits) is where he lists his many reasons to not sell a good business. For me, this chapter is the heart of the book. If you’re going to read just one chapter from the book, this should be it. Many of the ideas from this chapter are familiar to me and I have argued for them myself.

So what are his reasons to not sell?

• Richest entrepreneurs are those that never sell their stakes. If they don’t, why do we?

Think about why the Walton family is the wealthiest business family in the world today. It is because they inherited Sam Walton’s stake in Walmart (WMT). Sam Walton who founded Walmart in 1962 never sold his shares. Even today, his descendants own about 50% of Walmart. Peter Lynch wrote once that investors who owned Walmart for just 11 years (1980 to 1991) gained a 50-bagger by just holding on to their shares.

• Only a few good businesses create majority of wealth over long periods.

I wrote about this research from Bessembinder that shows just 4% of all publicly traded companies accounted for all the wealth creation. It’s hard enough to find one long-term winner, let alone find new winners every few years. We should just hold on to our winners.

• Impact from picking bad businesses will be eclipsed by returns from successful compounders if we hold them for the long term.

Yes, indeed. A real world example: see this post from 2022 where I shared a list of all the stocks I had owned in 2011 (it was a long list). And then ten years later, I had sold many of the laggards at a loss and still did very well with my top-ten performers.

• Staying invested for many years is a great way to enjoy fruits of compounding. In the book, he shared some excellent examples of how compounding works over very long time horizon.

Consider this: 94% of Warren Buffett’s total net worth was gained after he turned 60. Even after giving away over $60 billion to charity since 2006, the value of his remaining fortune has still grown more than tenfold since he turned 65.

• By deciding not to focus on selling, we become better buyers. Less mental space is needed.

I wrote about this in a blog post in 2020: I compress my investing actions down to just one kind: what to buy. I don’t need to worry about when to sell. See the full post here: Buy Right, Sell Never.

That being said, his never sell mantra does not mean he never sells ever. He wrote in the book that when there are redemptions from his fund, he is forced to sell a fraction from all stocks in proportion to their values. In my case, though I don’t face redemptions, I sometimes sell a fraction of my holdings to raise cash to desired level.

Prasad shared two real-world examples of stocks he owned for a long time and what might have happened to his returns if he locked in profits every time a stock made a big move. His were stocks from the Indian stock market.

Here I share my own experience with an American business, Blackstone (BX). In a 2018 blog post (Why I am buying Blackstone), I gave my reasons for buying Blackstone shares.

I own Blackstone since June 2017. Since then, BX has done very well for me: nearly 5.6x gain in 8 years and that’s before even counting its ample dividends.

But I had plenty of moments during those eight years where I could’ve impulsively acted to lock in my profits. Conversely, I could have also bailed out to stem my losses. There were many occasions (nearly every year as you’ll see below) where Blackstone shares jumped up by more than 5% in a single day. Or went down by 5%.

In eight years of holding on to Blackstone (that amounted to exactly 2,112 trading days), there were just 82 days when the stock moved up or down by 5% in a single day. But those big-move days were spread all over that time period, as you can see from the chart below. In three of those years, the stock went up or down by more than 10% in a day. I could have sold out in 2020 when BX dropped by 10%+ multiple times in a single month. Or in 2022 or 2025 when the stock jumped up by nearly 15% in a day, I could have closed my account to lock in profits. But I didn’t.

It might surprise some readers that even though BX stock did wonderfully well in last 8.3 years, it would have been nearly impossible to decipher that return from its daily price fluctuations. As seen in below chart, in 47% of the trading days, BX closed at a loss. Up days were just a shade more, at 53%. However, up and down days were evenly distributed. It would have been nearly impossible to discern a trend from it.

As Prasad wrote eloquently in that chapter:

We don’t sell when stock prices rise suddenly. These non-actions during market euphoria have been as important as – actually, more important than – our acts of buying during market panics.

If we have done anything right, we have not done anything on days when selling seems to be the most logical thing to do.

This sums up my own thoughts on selling too. Like him, I also won’t ever close a position just because the stock has moved up (or down) a lot. Prasad’s words are apropos today as the market has gained quite a bit in last twelve months. However, as Charlie Munger once said: “The big money is not in the buying or selling, but in the waiting.”