Back in 2012, I made one of the biggest mistakes of my investing career.
Apple had just become the most valuable company in the world... surpassing ExxonMobil with a market cap of around $337 billion.
The stock had already delivered incredible returns.
It seemed “expensive” compared to where it had been just a few years earlier.
But I never took a position in Apple... because I was convinced it had “gone up too much” and was due for a correction.
That decision cost me a fortune.
Since 2012... Apple stock has increased roughly 10-fold through a combination of increased earnings and share buybacks.
My “too big already” assessment turned a potential life-changing investment into a cautionary tale about the dangers of avoiding winners.
And this experience taught me a crucial lesson...
The market doesn’t care what you think is too high in terms of market cap.
Great companies can stay “overvalued” for decades while continuing to compound wealth for patient shareholders.
Consider some other examples...
Amazon looked “expensive” when it hit a $100 billion market cap in 2012. It’s now worth over $1.5 trillion.
Microsoft seemed “fully valued” when it crossed $500 billion in 2017. It’s since 4x’D from there.
Tesla appeared “ridiculously overpriced” at a $50 billion valuation in 2019. It peaked at over $1.2 trillion just two years later.
The pattern is clear...
Selling great companies simply because they’ve appreciated significantly is often a costly mistake.
This doesn’t mean you should never take profits or that valuations don’t matter.
But it does mean that “it’s gone up too much” is rarely a good reason to sell a quality business.
Here’s what I focus on instead...
Has the business fundamentally changed for the worse?
Do I need the money for something specific?
If the answers to both those questions is no.... I typically hold on regardless of how much the stock has appreciated.
Because the best investments often feel uncomfortable to hold.
They seem pricey compared to where they were… or they make up an uncomfortably large percentage of your portfolio.
All while other investors question your sanity for not taking profits.
But that discomfort is often a sign you’re onto something special.
Warren Buffett has held Coca-Cola since 1988, despite the stock appreciating over 2,000% since his initial purchase.
He’s held American Express since the 1960s!
These positions have made him tens of billions because he didn’t sell when they seemed expensive.
Because the hardest part of investing isn’t finding great companies…
It’s having the conviction to hold them through their inevitable periods of seeming overvaluation.
My Apple mistake taught me that the market’s capacity to surprise on the upside is virtually unlimited when it comes to truly exceptional businesses.
Don’t let short-term thinking rob you of long-term wealth creation.
Oliver