What separates good investors from great ones? One of the most important things is the ability to recognize whether to continue to hold a stock when the story begins to change -- or to sell it.

 The biggest blunders I see come from people dumping stock because of sudden price movements up or down, usually from news about the company or a macro event affecting the whole market. It happened to my friend Charlie with Microsoft in 1995. I wrote about how tough it was for him to miss out on a 10-bagger -- and hundreds of thousands of dollars in gains.

The lesson I took from Charlie's experience is that if you're going to sell a relatively young, dynamic, and important company, you'll want to have some defensible reasons -- more than just, "The stock is down/up 25%, and I'm worried."

Microsoft is but one example; those who sold after early gains in Chesapeake Energy (NYSE: CHK) or Rubicon Minerals (AMEX: RBY) missed out on incredible 990% and 1,011% gains, respectively, in the "lost" decade of the '00s.

But how do you distinguish the potential winners from the underperformers?


Early 2000 Gain

2000 - 2010 Return

Cisco (Nasdaq: CSCO)



Sirius XM (Nasdaq: SIRI)



Microvision (Nasdaq: MVIS)



The answers are not obvious; if they were, you wouldn't need advice from anyone.

A few weeks ago, I noted with interest that the Motley Fool Global Gains team recommended selling Garmin. This company shares many of the same characteristics as Microsoft had in 1995, and you'd be right to wonder whether the team would regret the sale in the long run. But its reasons are, well, reasonable.

What happened?
The competitive landscape has changed since the Garmin recommendation in early 2008. While there was always a fair amount of competition in the traditional consumer global positioning system space, things started to shift a bit once Apple, Research In Motion (Nasdaq: RIMM), and others started cranking out handsets with built-in GPS software.

While that alone didn't seem insurmountable for Garmin, the launch of Google Maps Navigator is a game-changer. This turn-by-turn navigation system with voice guidance is backed by the vast amount of resources available to Google, and it's designed for Internet-connected devices -- which means never having to update map data, like I've yet to do with the five-year old GPS unit in my car. There are plenty of other handy and unique features with Google Maps Navigator, but the big one is ... it's free.

According to the Global Gains sell report:

Navigator's impact on Garmin probably won't be immediate -- it's still a test product, and so far it's only available on Google's Android phone operating system. But as Navigator matures, the product will become better and will probably make its way onto other phones, including Apple's iPhone.

Short-term noise vs. long-term problems
Ultimately, Global Gains had compelling reasons to sell that had nothing to do with short-term price swings or any other short-term noise. Instead, Garmin found itself on the wrong end of a technological shift in the industry, one which is affecting its long-term earnings power.

Since the sell call, the competitive walls have closed in further -- Nokia (NYSE: NOK) launched a free GPS offering in a number of its smartphones. Nokia owns Navteq, which licenses map technology to Garmin.

Garmin was recommended originally because of its strong growth prospects in Europe and other international markets. But this is a stalling growth story, and there was too much optimism built into the five-year forecast of 11.4% annualized growth. (Analysts have since scaled that number back to 6.75%.)

When there's a dramatic shift in the competitive landscape just over the horizon, it's usually best not to wait until you get to the horizon to sell. And when your investing thesis changes this much, it's smart to move on.

The Global Gains team is committed to constantly evaluating its investing theses -- and moving on when it's time to do so. One of the current recommendations is Guangshen Railway, the dominant passenger and freight rail provider in China's most populous province. You can find out more about the thesis, as well as the team's top five stocks to buy now, with a no-obligation free trial to the service. It's good for the next 30 days. Click here to get started.

This article was originally published Feb. 23, 2010. It has been updated.

Fool analyst Rex Moore warns you to take a deep breath before reading on. He owns shares of Microsoft. Microsoft, Chesapeake Energy, and Nokia are Motley Fool Inside Value picks. Google is a Rule Breakers recommendation. Apple is a Stock Advisor selection. Guangshen Railway is a Global Gains pick. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Chesapeake Energy, and has a feng shui disclosure policy.