Investors in surging stocks such as Crocs (NASDAQ:CROX), Terra Nitrogen (NYSE:TNH), and DryShips (NASDAQ:DRYS) have to be wondering whether their investments have already run the race -- or whether they're just lacing up their sneakers.

What to do with a stock that's been on a winning streak is a difficult decision for investors. On the one hand, we want to pocket some of our gains, but on the other we don't want to miss out on the potential for even more profits.

Know when to hold 'em
Turns out that, more often than not, investors cut their gains short and rob themselves of additional wealth. According to a study by James Montier, an English global equity strategist, "individual investors are 1.7 times more likely to sell a winning stock than a losing stock."

Even though we may be aware of the potential gains we stand to make by holding onto our winners, there's also a strong urge not to lose all that has already been gained.

But the additional gains your winners stand to make render this decision much more difficult. Investors that held onto the following stocks despite strong previous gains have been rewarded for their foresight.  

June 1999 to June 2003

June 2003 to Present

Penn National Gaming (NASDAQ:PENN)



Chesapeake Energy (NYSE:CHK)






Oshkosh Truck (NYSE:OSK)



Historical return data courtesy of Yahoo! Finance as of June 22, 2007.

Feast or famine?
So, how do you tell whether your stock will continue to produce outsized gains? Here are three criteria to help you get started:

  1. Is the company run by tenured, top-notch management?
  2. Does it have a sustainable competitive advantage?
  3. Is there a wide market opportunity?

In June 2003, the four aforementioned companies were run by experienced CEOs who had been with their respective companies for more than five years.

Second, all four continued to have a competitive advantage over their peers. Penn National Gaming had a firm grip on the Mid-Atlantic gambling scene and was extending its reach into the Midwest and South. Chesapeake Energy's efficient and productive drilling methods helped it grow from the eighth-largest independent gas producer in 2002 to fifth in 2003 (today it's the third-largest). NVIDIA was emerging as the brand of choice in high-performance computer graphics cards. Oshkosh was a leader in specialty truck manufacturing and had been selling its products to the Department of Defense for 70 years.

Finally, these companies were in industries with wide market opportunities -- gambling (an industry estimated to hit $144 billion in revenue by 2011), natural gas (used in more than 60 million homes in the U.S.), computer graphics chips (fueled by the video game industry, which is projected to be worth $49 billion worldwide by 2011), and truck manufacturing (which has received a boost from increased spending from the Departments of Defense and Homeland Security).

Even after their solid gains from 1999 to 2003, each of these companies was well-poised for continued growth. And grow they have.

Buy, sell, or hold?
Making a decision on a winning stock -- as investors in Crocs, Terra Nitrogen, and DryShips now must do -- is often harder than making one on a losing stock. After all, we don't want to be left holding the bag while other shareholders are paying for that Caribbean vacation they've always wanted. But if your stock continues to satisfy the above criteria, it stands a good chance of even greater growth. Let those who sold early take their Caribbean vacation -- you may be able to pay for your own island by the time your winning stock has finished its run. Or perhaps something more modest, like your children's tuition or a more financially secure retirement.

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Todd Wenning has been to the Caribbean but actually prefers the Carolina shore. He does not own any shares of companies mentioned in the article. NVIDIA is a Motley Fool Stock Advisor pick. Chesapeake Energy is an Inside Value choice. The Fool has a disclosure policy.