The Hidden Loopholes in Popular Investing Advice

If you’ve spent any time watching investing videos or reading articles, you’ve probably heard this line:

“Don’t sell your winners too soon. Let them run.”

It sounds so wise — almost like timeless Wall Street philosophy. And in many ways, it is good advice. Selling too early can cap your upside. Some of the biggest fortunes were made by holding onto great companies for decades.

But there’s a giant problem:

How do you actually know it’s a winner in the end — and not a stock that’s about to reverse and burn you?

Or worse: how do you know you’re not holding too long, riding it all the way back down?

This is the loophole that most of those “don’t sell too soon” videos never fill in. They warn you against panic selling, but rarely give you practical, systematic ways to decide when to trim, when to hold, and when to get out.

Why This Advice Can Be Misleading

It’s easy to cherry-pick examples. People love showing charts of Apple, Amazon, or Nvidia — look how much you’d have missed out on if you sold too early! But we rarely see the charts of once-hot stocks that collapsed: think Enron, Lucent, or even more recently, Zoom and Peloton.

Without a clear framework, “hold your winners” becomes little more than a hopeful slogan.

A More Practical Approach: Index Funds or Systematic Rules

For most investors (myself included much of the time), the simplest solution is to just stick with index funds.

With a broad index like the S&P 500, you automatically hold the winners — and the market trims the losers for you over time.
You also avoid the emotional stress of trying to time exits on individual stocks.

But if you want to own individual stocks, you can still protect yourself by using systematic, rules-based strategies. For example:

Valuation rules: Sell or trim when a stock hits a multiple (like P/E — price-to-earnings ratio, which compares a company’s share price to its earnings — or P/S — price-to-sales ratio, which compares share price to total sales) far above your comfort zone. For beginners, a P/E ratio above 40 or a P/S ratio above 15 might be a red flag, but this varies by sector.
Trailing stops: Use a 20% or 25% drop from recent highs as a signal to take profits or reduce your position. For example, if a stock rises to $100 and then falls to $80 (a 20% drop), you might consider selling a portion.
Rebalancing: Periodically trim positions that grow outsized, so one “winner” doesn’t dominate your portfolio and expose you to a painful reversal. Rebalancing simply means adjusting your holdings back to your target allocation (e.g., making sure no single stock is more than 10% of your portfolio).

These rules might sound boring, but they remove emotion — and help you avoid both selling too soon and holding too long.

Another Practical Solution: Diversification

There’s also a classic approach that sits between pure index investing and picking a few individual stocks:

Build a diversified basket of stocks.

If you own 15, 20, or even more carefully chosen companies across different sectors, you don’t have to stress as much about any one stock falling short. You’ll likely have a few laggards — but also a few big winners that can carry the portfolio.

This means you can still participate in the upside of individual businesses you believe in, without letting a single failure derail your entire plan.

It also reduces the emotional roller coaster. If one of your stocks drops 50% but only makes up 4% of your portfolio, it stings — but it doesn’t blow up your wealth.

Why Systematic Rules Help: Behavioral Biases

Humans are wired to make emotional investing mistakes. Two common pitfalls:

Loss aversion: The pain of losing money feels stronger than the joy of gains, which can lead to holding losers too long or selling winners too soon.
Recency bias: Recent performance feels more important than long-term trends, making it tempting to chase hot stocks or panic during downturns.

Systematic rules (like those above) help counteract these biases by providing clear, unemotional guidelines.

Staying Open, Systematic, and Diversified

At the end of the day, there’s no single “right” answer. That’s why I like to combine a few principles:

Use index funds as a foundation.
Build a diversified basket of individual stocks for ideas I really believe in.
Follow systematic rules (like valuation checks, trailing stops, or periodic rebalancing) to remove some emotion.
Stay aware of behavioral traps, and use rules to help avoid them.

And maybe most importantly — stay open to learning. The investing world is always evolving. There are countless strategies I haven’t tried yet, and I’m always curious about what others have found helpful.

So if you have a different approach, or a story of how you’ve handled the “don’t sell too soon” problem, I’d love to hear it. After all, part of the fun is exploring new ideas together.

Embracing Uncertainty with Informed Belief

No process is 100% foolproof. Markets are unpredictable, and even the best rules or strategies can fail at times. But investing successfully isn’t about certainty — it’s about having a framework you believe in enough to stick with during ups and downs.

For me, that belief includes ideas like:

The economy will recover over the long run.
The odds are on your side if you stay diversified and systematic.
While individual stocks can fall hard, broad markets tend to rise over time.

It’s this informed optimism — combined with a disciplined approach — that helps me manage risk without losing confidence.

Final Thoughts

I’ve made my own mistakes on both sides: trimming stocks that later doubled, and holding “promising” companies that slid 80%. Over time, I’ve learned it’s not about perfectly timing the top or bottom — it’s about having a plan that keeps you invested in the market’s long-term growth without letting a single stock wreck your goals.

Next time you hear “don’t sell your winners too soon,” remember it’s only half the story. Without a clear plan, it’s easy to end up either:

Selling too early out of fear, or
Holding too long out of greed.

Whether it’s through index funds or a systematic approach to individual stocks, the key is to have a process you trust — but also to remember no process is perfect. It’s your belief in the plan and the market’s long-term resilience that makes the difference.

Don’t Sell Too Soon… But When Do You Sell