Now that the market is bullish, we start to get questions about profit-taking and portfolio-trimming. Then we get the quote: “Selling your winners and holding your losers is like cutting the flowers and watering the weeds.”
I need to get this out of the system:
If we want to use this analogy, isn't it wise to cut your flowers and sell them? Which flower in the world can last forever? If you go to a flower shop, you will notice most if not all flowers are cut near (not at or after) their peak. The only time you shouldn't cut (all) your flowers is if you're growing a fruit tree, but in that case, flowers are not your winners (they are indicators of winners), fruits are your winners, and you should still harvest/sell your winners. Additionally, in most orchards, you most definitely want to trim your flowers or even some of your tiny fruits so that your tree can produce better.
I think it's safe to say that Peter Lynch is not a gardener/farmer.
For the “watering weeds” part, admittedly this is more debatable because if your seedlings are the wrong type or with weak genes, you may really want to stop watering them or pull them out, re-use the space (capital) on good seedlings. However if you have strong convictions (e.g. good understanding of a plant's lifecycle), you can't treat watering/fertilising a plant as a cost/loss and kill it if it doesn't perform soon enough.
Leave a Reply