Motley Fool CEO: Selling Winners Too Soon Is Investors' "Most Significant Mistake"

Key Points

• Motley Fool CEO Tom Gardner recently said the worst mistake investors make is selling too soon.

• Long-term investing is a core principle of The Motley Fool's philosophy.

• Selling too soon could end up costing more than any losing stock investment.

• These 10 stocks could mint the next wave of millionaires ›

In a recent interview, The Motley Fool's CEO and co-founder, Tom Gardner, was asked what is the most significant mistake investors make. And it might be surprising to learn that the mistake he mentioned isn't one that involves losing money, at least in the immediate sense.

"The most significant mistake that an investor makes is selling a winner too soon," Gardner said. "We don't think that because when we look at our portfolio and see a stock that's down 37%, we think 'that's the worst mistake I've made.' I put $4,000 in it, and I lost $1,000."

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Gardner went on to say that there's a far greater risk of loss when it comes to selling a winning investment too early: "The biggest loser, though, is the winner you sold too soon -- that is, the ability to take money, $10,000, and put it into Starbucks (NASDAQ: SBUX) and end up with $500,000."

Image source: Getty Images.

Letting your winners run, and focusing on long-term investing in general, are cornerstones of The Motley Fool's investment philosophy. Gardner pointed out that some of the market's biggest winners had times when they looked like they had plateaued, specifically mentioning a five-year period during which tech heavyweight Nvidia (NASDAQ: NVDA) went nowhere -- before rocketing higher.

He's absolutely right. From 2010 through 2014, Nvidia produced just a 12% gain for investors in five years after nearly quintupling during the 2000s. Since that time, however, Nvidia has been up by 33,000%. That's not a typo. Imagine if you had sold in 2014 because you thought the growth story was over.

Learning the hard way

I learned this lesson firsthand, earlier in my investing career. I've written the full story several times, but the general idea is that I made a modest investment of 100 shares in Tesla (NASDAQ: TSLA) at $23, shortly after its IPO in 2011, and sold in late 2013 to help pay for my wedding. At the time, the then-new Model S had just been named "Car of the Year" by Motor Trend, and the stock had nearly tripled from the price I paid.

However, I could have certainly paid for my wedding in other ways, such as with the AT&T (NYSE: T) stock I had decided to hang on to instead. And if I had held my Tesla stock, it would have been a grand slam home run. Tesla has split twice since I sold, once 5-for-1 and again at 3-for-1, so my original 100 shares would now be 1,500 shares. The current price is about $292 per share, so my $2,300 investment would be worth about $438,000 today if I had held on.

A valuable investing principle

Of course, this was a tough lesson to learn, but it's one that has served me well in the 12 years since.

To be sure, I still sell stocks occasionally, but for the right reasons. For example, I recently sold a stock because its growth unexpectedly slowed down. On the other hand, when I sold Tesla, the company had been doing exactly what I hoped it would, or even better. The only reason I sold is that the price went up and I decided to take a profit.

For this reason, I'm sitting on large gains in the Bank of America (NYSE: BAC) stock I bought just after the financial crisis, the Block (NYSE: XYZ) shares I scooped up shortly after its IPO for about $10, and the shares of real estate investment trust Ryman Hospitality Properties (NYSE: RHP) that have been nearly a ten-bagger since I bought at the depths of the COVID-19 pandemic. There are other examples as well, but the point is that I've learned to let my winners keep winning. Hopefully this helps you learn it as well without repeating my Tesla mistake.

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Bank of America is an advertising partner of Motley Fool Money. Matt Frankel has positions in Bank of America, Block, Ryman Hospitality Properties, and Starbucks. The Motley Fool has positions in and recommends Bank of America, Block, Nvidia, Starbucks, and Tesla. The Motley Fool recommends Ryman Hospitality Properties. The Motley Fool has a disclosure policy.