Should I Sell This 860% Gainer?

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I'll admit I've had worse problems.

Compared to buying stock in companies that proceed to implode (I'm looking at you, Allied Irish Banks), or holding on to stocks that have been mostly stagnant for the past 15 years (hello, there, Microsoft), the "problem" I'm looking to solve in my portfolio today is an investor's dream.

Namely, should I sell a portion of a big, big winner when it's a company I still believe in?

But I'm getting ahead of myself. Let's start at the beginning.

Building wealth one burrito at a time
I bought my first shares of Chipotle Mexican Grill (NYSE: CMG  ) in 2007, and I added to my position when the market went to pieces in September 2008. I bought for the same reasons that so many here at the Fool love the company. I had a firsthand appreciation for the product and experience of eating at Chipotle (barbacoa and black bean burrito, please), I believed in its management and what the company stands for, and I was confident in its bright future and strong growth prospects.

Since then, I've been a dedicated Chipotle shareholder, following the company's impressive growth, reading about its new ShopHouse Southeast Asian Kitchen concept, watching its adorable commercials, and remaining steadfast through silly hiccups like the supposed Taco Bell threat and David Einhorn's shorting of the stock last fall -- people, please.

I've been rewarded for my dedication, as you've likely figured out, gaining about 860% on the average of my two buy prices. To say I've been pleased would be the greatest of understatements.

To sell or not to sell
So what gives? Why am I -- a Fool, a committed long-term buy-and-holder, a Warren Buffett fan of the highest order -- considering selling now?

My belief in Chipotle, its story, its numbers, and its prospects hasn't wavered. I know about all the incessant hand-wringing over the company's share price and its rapid rise, especially over the last 12 months (it's up about 90% in that time frame alone). That's not what's making me think about selling, either. And to be clear, I'm not thinking of selling all of it -- only some of it.

Nope, it's that the little burrito-maker that could has become the largest holding in my portfolio. I have a discount brokerage account, where I hold individual stocks, and two retirement accounts, where I'm invested in index funds. Looking just at the individual equities side of things, Chipotle now makes up more than a quarter of my holdings, at 26%. When I include the index fund accounts, which provide a bigger view of my invested assets, it brings that down to a more manageable but still high 14%. That's more than double my next-largest position.

Now, heaven knows I'm not complaining. This is what we all hope for when we make that leap from the sidelines to being an actual part-owner of a publicly traded company.

Nevertheless, I have two minds about this. And given Chipotle's popularity in the Fool community and in our newsletters, I figure I can't be the only one.

On the one hand:

  • By selling just a portion of my shares to bring down their weight relative to my other holdings, I'd reduce the risk in my portfolio by lowering my exposure to Chipotle. (Nothing personal, Chipotle.)
  • At the same time, I'd free up some cash that I could then redeploy into other investment opportunities.
  • And by selling only a portion of my holding, I'd still benefit from Chipotle's future growth, because I'd still be a shareholder.

On the other hand:

  • What about letting your winners run (and run and run)?
  • What about Buffett's favorite holding period -- forever?
  • What of this quote about Shelby Davis from The Davis Dynasty, explaining how he turned $50,000 into $900 million in less than 50 years: "A few big winners are what count in a lifetime of investing, and these need many years to appreciate?"
  • What about -- ugh -- taxes?

Stock picking versus portfolio management
My primary focus has always been finding excellent companies to hold for the long term. However, through the years, I've begun to appreciate that managing a portfolio is different from simply being a long-term shareholder.

I would need to sell half my Chipotle stock to bring its weight in my portfolio down to about 7%, which for many is still a touch too high. And yes, I realize I'd have to pay taxes on those gains. I'm still thinking my decision through.

So I want to know, Fools -- what would you do if you were in my shoes? Or, if you've faced the same conundrum, how did you handle it? Did you sell some or just let it ride? Let me know in the comments section below.

And, should you find yourself in the same situation I'm in with any of your holdings, I'd urge you to take a minute to learn about our Motley Fool Million Dollar Portfolio service -- where hedge fund veteran Ron Gross is using $1 million of The Motley Fool's own money to show Fools how to build a market-beating and well-diversified portfolio made up of top Motley Fool recommendations.

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Read/Post Comments (6) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 04, 2013, at 6:52 PM, Dscotte843 wrote:

    I started buying apple back in 2001 and stopped buying in the spring of 2006 solely because it had grown and had become 68 percent of my portfolio. I did not sell, I just switched to buying other stocks. If had kept on buying apple, I might be retired now. Remember, you are not a mutual fund and you don't have requirements on how much of your portfolio can be in any one stock. Hold on to it, there is plenty of growth ahead.

  • Report this Comment On December 04, 2013, at 7:37 PM, duuude1 wrote:

    Hey LouAnn,

    I think you have some outstanding company in TMF, if I'm not mistaken. With all the "David Gardner's first 100 bagger" banners everywhere on this site, one of your fellow writers was kind/brave/honest enough to point out that even David did not have the convictions to hold onto ALL of his original AMZN shares, in which case he'd be a bazillionaire right now....

    I believe we can benefit from that lesson and do better (I would love to hear David's take on what he would do different now - and I believe he would say that he'd stay fully invested in his original position assuming the remainder of his portfolio is diversified). In other words: screw re-balancing.

    "Managing a portfolio", as you mention, is exactly the reason portfolio managers do so poorly. In my opinion - keep your hands off and stop fiddling so much. "Simply being a long-term shareholder", which you appear to disparage, being patient, is exactly the recipe you need to beat the miserable performance of managed funds who over time never beat the indexes.

    How many other TMF writers have mentioned that the biggest mistakes they've made is getting nervous and selling too soon. Obviously, you are not selling after only a 10% or 20% gain as most nervous nellies tend to do way too often. You are several times above those returns - good for you. But you always hear the following or similar excuses for lack of fortitude: "it's never bad to lock in your gains" - and it sounds like those excuses are speaking to you now. You're nervous. The fear of losing those gains are foremost in your mind.

    I'm well diversified in stock index funds and many individual stocks. Several have been stagnant for nearly a decade, just like you. The stocks that have shot through the roof are the MF Stock Advisor recs that I decided to pursue. One is NFLX. It is now more than 20% of my portfolio - and I also bought it in 2007 like when you bought Chipotle. It started out as a miniscule % of my portfolio but is now the elephant on the seesaw, counterweighting everything else. The next biggest holding, AAPL, is about 7% and is also doing very well.

    Even without those two, the balance of my diversified portfolio has been doing very well - I've always held and never sold through both the 2000-1 and 2008-9 crashes.

    Everyone encouraged me to sell some or all of my NFLX back before Qwikster happened in 2011. Of course I got the "I told you so..." when that happened. Instead, and to my wife's horror, I bought more and more NFLX all the way down through late 2011 and into 2012.

    And of course we are in a similar situation with AAPL, which was at $700 at one point, and I've bought all the way down on that stock as well.

    There's a fundamental reason for buying and HOLDING - and minimizing the fiddling and managing. How many of us really respect our managers at work? What do they do? Fiddle. Manage. Does it really do any good? For most, no it doesn't. Hand's off, except for a minimal amount of strategic decision-making, is overall the best way to do things in both managing people and your finances.


  • Report this Comment On December 04, 2013, at 7:59 PM, NOTvuffett wrote:

    Sell! Lock in your profits. The behavior of the share price has been weird lately, and I believe the market is overbought in general. I believe the P/E is like 52 right now and ventures like this usually grow in value at a slower rate as the years progress.

  • Report this Comment On December 04, 2013, at 9:36 PM, tmsz100 wrote:

    Seems like a huge portion of your portfolio to bet on food services. It is not a world changing technology or company, it is simply better food, and to me, food is like fashion. Today's hot concept will just another part of the norm in a year or so, and there will be a hot new concept that people have to have. It is a great company, love the product. At long term capital gains rate of 20%, or 23.8% if you are in the higher tax brakcets, seems like a fair gamble, there is a fair chance that this could be 23% lower in a year. Assuming it gets back to a multiple closer to 30 this stock could be at $400. Who knows. Easy to kick yourself for lost gains, but it is less painful than selling at a lower price and kicking yourself for real losses.

  • Report this Comment On December 05, 2013, at 12:23 AM, FoolTheRest wrote:

    An excellent, and highly personal question, LouAnn. Have you considered your personal tax appetite and charitable goals? I had the same issue with Chipotle last year in somewhat similar proportions to yours. I donated all of my shares and, when the stock pulled back I repurchased some. In retrospect, it was a good decision since I would have even more portfolio weight risk concerns now than I did then. However, hindsight being clear, I would have donated only half of the position.

    Just something to think about.


  • Report this Comment On December 05, 2013, at 5:24 PM, XMFWhatsmyoption wrote:

    Hey LouAnn,

    A few questions to help/hinder you in your decision.

    Would you start a position in CMG or any other stock at 24% of your portfolio?

    Does CMG have a risk/return profile at least twice as high as you next biggest holding?

    Do you have much cash, to give you options in case of a pull back?

    Do you have any better opportunities to invest in?

    I would only hold a 24% position if it had the best risk/return profile I could find. Other wise you're simply gambling based on old mantras.

    Good luck, it's a nice problem to have

    Dean @fusioninvesting

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