Everyone knows that if you get too greedy with your investments, you're going to get burned eventually. In the long run, though, if you expect to earn top returns, you need a little greed in order to keep from missing out on the best stocks. The times when you sell too early will cost you a lot more than even your worst stock picks.

Here's why you need 10-baggers
If you look at the stock market from a big-picture perspective, it's easy to get tricked by its illusion of relatively smooth price movements. Even during volatile periods like we've seen over the past couple of years, it's rare to see the major market average move by more than a few percentage points in any given day. And seeing the S&P 500 double in value -- or get cut in half -- definitely isn't something that happens overnight.

When you dissect the overall market, though, you can see that the relative calm projected by the major benchmarks is misleading. On a daily basis, you'll almost always see many stocks rising or falling 10% or more. And over periods of years, you'll find that a handful of stocks produce incredible gains -- without which you won't be able to match the market's return.

Would you hold on?
So, what's the big deal? The obvious advice is that if you can find long-term winning stocks, just hold onto them and reap the benefits. But especially given the bear market, many investors have started to question the wisdom of riding stocks all the way back down, losing their gains rather than locking them in.

That argument has a lot of appeal. After all, nobody wants to see hard-earned paper gains evaporate in a market downdraft. Unless you have superhuman discipline, you've probably beaten yourself up over not selling at least some of your stocks back at late 2007's highs.

But as good as it feels to know that you've made a winning investment, the problem with bailing out is that you'll often miss out on huge future gains. Take a closer look at these winners from the past five years:


If You Bought in June 2004, It First Doubled ...

5-Year Total Return

Illumina (NASDAQ:ILMN)

July 2005


Green Mountain Coffee Roasters (NASDAQ:GMCR)

Aug. 2005


Terra Nitrogen (NYSE:TNH)

Sept. 2004


American Dairy (NYSE:ADY)

Apr. 2005


True Religion (NASDAQ:TRLG)

Sept. 2004


Source: Yahoo! Finance.

Buying any of these stocks, you would've felt like a genius. Doubling your money in anywhere from a few months to just over a year, you could've easily cashed in and counted yourself lucky to have scored a big gain.

In hindsight, though, selling would have been a major mistake. Just as anyone who sold up-and-coming stocks like Microsoft (NASDAQ:MSFT) and Wal-Mart (NYSE:WMT) decades ago during their huge run-ups, being greedier than the average investor paid off big for shareholders willing to put their paper gains at risk.

Know yourself
If you're going to beat the market over the long haul, you'll need to cash in on those rare 10-bagger stocks. Those stocks are crucial in making up for the inevitable mistakes you'll make -- including some total losses, to which long-time shareholders in General Motors and Lehman Brothers can attest. Without going the distance on the highest-growth stocks, your returns will fall short.

One way to build discipline to hold onto your winners is to focus less on the individual holdings within your portfolio and think of it instead as a diversified single unit. Although you clearly need to stay informed about each company whose shares you own and how current and future events will affect their stock prices, you'll be less likely to sell a stock prematurely even after it has doubled or tripled in value if you're not continually thinking about how much that one stock has gained.

As you find winning stocks, count yourself fortunate -- but don't be in a hurry to lock in your gains. If you sell every double you ever own, you'll ensure that you'll never lose money -- but you'll never know the joy of seeing any of your stocks double again and again.

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One of Fool contributor Dan Caplinger's biggest problems is cutting his winners short. He doesn't own shares of the companies mentioned. Illumina is a Motley Fool Stock Advisor selection. Microsoft and Wal-Mart are Motley Fool Inside Value recommendations. Green Mountain Coffee Roasters is a Motley Fool Rule Breakers pick. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy won't cut you short.