Of all the words he's written in the pages of Motley Fool Stock Advisor, these are the ones Fool cofounder Tom Gardner most wants to take back: "Today, Whole Foods is trading north of $60, and I'm recommending that you sell the stock, based on valuation."

He wrote that on May 5, 2003, after his double recommendation of the specialty grocer had climbed almost 30% in a year, compared to a market that had dropped more than 10%. But since then, Whole Foods stock has soared nearly 140% higher.

What made it doubly frustrating was that when he sold, he knew the business was getting stronger, management was executing well, and consumer demand remained strong.

Listen to the masters
Now, don't think I'm picking on Tom. He actually suggested I write this article to illustrate an important investing lesson. It can be told quickly in three parts, from three of the top investing minds of the last century:

"To win big in the stock market, individual investors should be inclined toward never selling." -- Thornton Oglove, author of Quality of Earnings

"If you've done the right research up front, the best time to sell a stock is almost never." -- Philip Fisher, author of Common Stocks, Uncommon Profits

"But in the next 20 years, the GEICO stock I sold grew in value to about $1.3 million, which taught me a lesson about the inadvisability of selling a stake in an identifiably wonderful company." -- Warren Buffett, chairman of Berkshire Hathaway, on selling his entire GEICO position in 1952 for $15,259

Did you catch the key lesson in all of these quotes? Buffett's last point is a critical one. The "don't sell" advice applies only to companies whose management and business model you still believe in, not in deteriorating situations where the economics have changed or where management proves incompetent or fraudulent.

Don't miss big
To better understand the point of these masters, consider the following example of an investor who decided to sell a few companies at the end of 2001:

Stock

Sell
Price

Recent
Price

Had You
Held

Opportunity
Lost vs. S&P

Amazon.com (NASDAQ:AMZN)

$10.82

$38.01

251%

239%

Cisco (NASDAQ:CSCO)

$18.11

$19.97

10%

(2%)

Intel (NASDAQ:INTC)

$30.47

$20.52

(33%)

(45%)

Wal-Mart (NYSE:WMT)

$55.64

$45.76

(18%)

(30%)

Home Depot (NYSE:HD)

$49.34

$42.45

(14%)

(27%)

Pfizer (NYSE:PFE)

$36.29

$26.60

(27%)

(39%)

Microsoft (NASDAQ:MSFT)

$28.92

$27.05

(6%)

(19%)

S&P 500 Index

1,148

1,294

13%

N/A

Total

23%

11%



An on accuracy basis, this investor did pretty well. Six of the seven stocks lost to the S&P 500 over the little more than four-year period. But one stock, Amazon.com, turned in great returns. Add the winner and losers together, and our investor missed out on 23% average gains, which would have topped the market by 11%.

Tom simplifies it even further: "When you sell a great company with a laundry list of competitive advantages simply because it seems overvalued, you're just as likely to be right as to miss out on an enduring multibagger. Every time you sell a three-bagger too soon, you'll need to correctly sell out of two future bankruptcies just to make up for it."

Lesson learned
Tom's recommendations have returned an average of 74% in the nearly four years since Stock Advisor was launched, compared to 21% for the same amounts invested in the S&P 500. But as incredible as that performance is, it would have been even better had he never sold "an identifiably wonderful company."

He closed out a recent message to subscribers with this: "Please know that I will continue to sell stocks in the future to avoid dwindling competitive advantages or poor management. But also know that my stocks are innocent until proven guilty because I believe Davis, Fisher, Oglove, and Buffett: The best time to sell well-researched stocks is almost never."

Tom and David Gardner have continued to learn and teach important lessons on their way to market-beating returns. If you'd like a look at their latest stock picks, as well as all their past recommendations, consider giving the service a free trial run. There's no obligation to subscribe.

Rex Moore regrets to inform you that he's no longer available for birthday parties. At time of publication, he held shares of Berkshire Hathaway and Microsoft. He will patiently continue to hold them. Whole Foods and Amazon.com are Stock Advisor picks; Microsoft, Pfizer, and Home Depot are Inside Value recommendations. The Motley Fool isinvestors helping investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.