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.
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