The Most Costly Mistake Investors Make
Why selling great businesses too soon could be your portfolio’s silent killer
Welcome to issue #006 of Invested Capital. Each week, I share one letter to help you invest smarter, think long-term, and build lasting wealth. My goal? To cut through the noise and bring you timeless lessons from great investors so you can make better decisions with your money and your life. Join 408+ readers learning how to compound capital and wisdom, one issue at a time.
In this week’s issue, I’m sharing my highlights and takeaways from Chris Cerrone’s letter, The Art of (Not) Selling.
The Big Idea: Holding > Selling
The difference between a good investor and a great one often isn’t what they buy, but how long they can hold it. In a world obsessed with activity, the real edge is discipline. And the most underappreciated skill in investing is the art of not selling.
Most investors interrupt compounding too soon
It’s natural to feel the urge to “lock in gains” after a stock doubles. But that mindset is driven by fear, not logic. Selling early might feel smart in the moment, but it kills the possibility of exponential outcomes. The greatest investments, the 10x, 50x, 100x outcomes, can only happen if you keep holding.
“When this happens, we refer to it as a 100-bagger… If you are fortunate enough to experience this firsthand, chances are you will become a true believer in the power of compounding.”
The market seduces you into action
The financial world rewards motion: fast trades, quick flips, flashy wins. But the best investors operate more like historians than speculators. They seek businesses that can compound value over decades, and they know that selling based on temporary conditions, like market volatility or valuation multiples, is often a trap.
“We are at our worst as investors when we allow concerns about these issues [like politics, the Fed, and macro headlines] to influence our investment decisions.”
The hardest part is mental, not analytical
Everyone wants to be long-term. But few actually are. The true challenge is emotional endurance: sitting tight while your winners become expensive… while your peers book short-term profits… while the headlines scream volatility. Great investors build their edge not just with research, but with temperament.
“This determination to hold on is a critically important, and not always well understood, aspect of our investment philosophy.”
Ask yourself: What would happen if I did absolutely nothing?
If the business you own is still growing, still has its moat, and is still run by capable leaders, then the most intelligent decision may be to stay put. Your real job as an investor isn’t to out-trade the market. It’s to out-hold it.
Compounding: The Silent Multiplier
“Allowing our investments to compound uninterrupted is our North Star.”
Compounding’s power isn’t linear; it’s exponential. And it only shows up late in the game.
The Penny Riddle
Imagine someone offers you two choices:
(a) $1 million in cash right now, or
(b) a single penny that doubles in value every day for 30 days.
At first, the penny seems laughable:
Day 1: $0.01
Day 7: $1.28
Day 14: $163.84
You're halfway through the month, and you're still under $200. At this point, almost anyone would second-guess their choice.
But here’s the catch:
Day 27: $671,088
Day 30: $10,737,418.24
The magic happens only in the final stretch. If you stop doubling on Day 20 or 25, you miss nearly all the upside.
“In those final four days, the value of the penny increases from less than $700,000 to more than $10.7 million.”
Selling too early is like quitting at Day 20
Many investors treat early gains as the “win” and cash out before real compounding kicks in. This is the silent killer of long-term wealth.
The best outcomes require belief + time
You need both vision and endurance. Most investors lack either the clarity or the conviction to hold through the slow climb, and into the steep slope.
“Patience and a long-term perspective are required to give the power of compounding an opportunity to do its magic.”
Train yourself to think in decades, not quarters.
Don’t Sell on Valuation Alone
“We are unfazed when our businesses are quoted in the market at prices above what we would pay for them.”
Selling a great business just because it looks expensive on a spreadsheet is often a mistake. The best businesses grow into their valuations, and then exceed them. When you own a compounder, the goal isn't to trade it; it's to keep compounding.
Markets are rarely generous with second chances
The logic behind selling on valuation often assumes you can buy back in at a cheaper price later. In reality, that opportunity almost never materializes. The business may keep performing, the price may keep rising, and suddenly, you're out of a winner with no re-entry point. You’ve swapped a known compounder for cash and uncertainty.
“When selling because of valuation, it is often with the idea that there will be an opportunity down the road to buy back in at lower prices. In our experience, it seldom works out this way.”
High-quality businesses are irreplaceable
Cerrone estimates that of the thousands of public companies, fewer than 100 meet their quality threshold. These aren’t interchangeable. You can’t just swap one for another based on relative valuation. Selling one of them, even at a premium, often leaves you holding cash, waiting for something equally rare to get cheap again.
“Growing and competitively advantaged businesses are just too hard to replace.”
Expectations are made to be exceeded
Many investors underestimate the compounding engine of great businesses. What looks like a high multiple today may turn out to be cheap in hindsight. If revenue, margins, and reinvestment runway continue to surprise to the upside, your valuation model quickly becomes irrelevant. Think Amazon in 2010, Apple in 2016, or Costco in 2018.
“What may seem like a high price today may be proven to be perfectly reasonable in hindsight.”
“The very best businesses tend to exceed expectations.”
Shift your framework from valuation timing to business quality. Ask: Is this company still growing at an above-average rate? Is its moat intact? Is management reinvesting wisely? If so, keep holding—even if the market is finally starting to agree with you.
When Selling Does Make Sense
“There may be times when we believe it is appropriate and necessary to sell.”
Selling isn’t forbidden, but it must be principled, not emotional.
3 scenarios when it makes sense to sell:
Slowing growth: If the business no longer grows above average, it may no longer fit.
The backbone of compounding is sustainable, above-average growth in economic value per share, often measured by free cash flow per share. When that growth slows, the long-term return potential naturally declines as well. You’re no longer compounding at the same rate. It’s like stepping off an express train and onto a local.
“To generate above-average returns over the long term, we believe we must invest in businesses that are growing sustainably at above-average rates.”
Moat decay: Losing competitive advantage is a major red flag.
Competitive advantage is not a permanent fixture. It erodes with changes in technology, regulation, distribution, or shifting consumer behavior. Even beloved companies can fall behind if they stop adapting. The best management teams proactively dredge the moat, but when they don’t, the compounding engine gets compromised.
“The moat must be dredged every now and then. Failure to do so may cause competitive advantage to weaken or disappear altogether.”
Poor management: A bad leadership transition can erode long-term value.
Leadership is leverage. The right CEO can compound value through thoughtful capital allocation, innovation, and culture. But when founders or visionary leaders step down, successors may lack the same clarity or skill. Cerrone advises to give new leadership time, but draws a line if performance and judgment fall short.
“We place heavy emphasis on identifying managers who possess equal parts skill and integrity.”
Create a sell checklist based on business fundamentals, not market opinions. Before selling, ask:
Has growth structurally slowed?
Is the moat intact?
Has management degraded?
Have you uncovered new information that changes the original thesis?
If yes, consider selling. If not, hold and let compounding continue.
“Selling something you know well to buy something new that seems better is a dangerous game. We have been bitten by this more than once.”
Tuning Out the Noise
“Wall Street trading desks do not earn commissions when you buy and compound.”
If you want to let compounding work, you need to protect your attention. The modern investing world is loud, fast, and engineered for reaction, not reflection. To win long term, you must learn to tune out the noise and focus only on what truly matters.
The financial world profits when you panic
Cable news, analyst reports, short-seller threads, and earnings commentary aren’t built to help you invest well, they’re built to trigger activity. More trades, more eyeballs, more emotion. But activity is the enemy of compounding. Cerrone puts it simply: these voices aren’t aligned with your goals.
“Never forget that people whose self-interest is diametrically opposed to your own are trying to persuade you to act every day.” — Thomas Phelps
Quarterly earnings don’t matter as much as you think
When you understand the core drivers of a business, its moat, reinvestment opportunity, pricing power, and culture, then a slight miss on quarterly EPS becomes irrelevant noise. Cerrone’s team doesn’t anchor on 90-day narratives, they focus on multi-year trends.
“Quarterly earnings reports become much less of an event. So do short-seller reports, newspaper headlines, and analyst downgrades.”
Deep understanding is the antidote
The more you truly understand a business, the more immune you become to distraction. That understanding gives you conviction in moments when others are selling. Cerrone’s team invests the time to isolate the essence of each business they own, so they can separate signal from noise.
“We endeavor to look past the non-essential details… and identify the essence of each business’s competitive advantage.”
Audit your information diet. Unfollow accounts, mute headlines, and unsubscribe from anything that pressures you to act instead of think. Replace noise with signal:
Deep company research
Management letters and transcripts
Long-term capital allocation history
Compounding thrives in silence. Your portfolio should reflect thoughtful ownership, not emotional reaction.
“Cable news is not our ambient noise. We think it is bad for your economic health.”
Final Thought: The Discipline of Doing Nothing
“Getting the first [selling] wrong makes the second [compounding] impossible.”
The hardest part of investing isn’t finding a great business, it’s sitting still after you do.
That’s what Chris Cerrone reminds us: the true art is not selling. Not reacting. Not letting a good business go for a slightly better story. And definitely not swapping a compounding machine for cash because of headlines or heat maps.
Because here’s the truth:
The greatest investment results aren’t built on clever trades. They’re built on the quiet, consistent decision to hold, especially when it’s emotionally uncomfortable to do so.
“If your investment doubles 6 ½ times, you will have $100 for every $1 you started with.”
That kind of wealth creation isn’t possible if you sell after the first double. You have to stay in the game long enough for the exponential curve to do the heavy lifting.
The magic isn’t in year 1…
It’s in year 10.
In year 20.
In year 30.
You don’t need to find the next big thing.
You need to have the strength to not sell the great thing you already own.
“If you are fortunate enough to experience this firsthand, chances are you will become a true believer in the power of compounding.”
So remember the penny.
Remember Day 27.
And remember: doing nothing is often the most powerful thing you can do.
Tl;dr
Hold > Sell
Compounding is a silent multiplier
Don’t sell solely on valuation
3 reasons to sell: slowing growth, moat decay, poor management
Tune out the noise
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Thanks for reading
Happy Compounding
Matt Harbaugh
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