Sell Your Winners Before It's Too Late

Your best stocks won’t stay perfect forever. We lay out a clear framework to decide if/when to take action on winners—whether that means holding, trimming, or exiting.

Let’s walk through how to define acceptable risk per position, evaluate concentration, and confirm the move. The goal isn’t to cap upside; it’s to make confident, rules-based decisions when a winner gets big—or starts showing cracks.

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You’ll Learn

Why selling winners feels wrong—but sometimes is right
Our brains extrapolate straight lines. When a stock climbs, we expect more of the same (greed/FOMO). Trimming based on risk exposure counters that bias without forcing you to dump a great business.

Trim, don’t torch
The goal isn’t to “cash your gains” across the board. It’s to skim a portion and rebalance—keeping plenty of shares to participate if compounding continues (think Apple/Microsoft) while avoiding portfolio concentration blowups (think a surprise –50%).

Define your risk in dollars, not vibes
Start from a clear, personal pain threshold (e.g., “I can tolerate losing $25K on any single stock”). Translate that into max position size using a worst-case drawdown (Mike models –50% to make the decision binary). Example:

If $25K is your max loss, then max position ? $50K.
When it grows above that (say $55K), trim back (e.g., to $40–45K).
This removes hesitation and “what ifs.”

Mike’s guardrails (steal these or set your own)

Single position cap: ~10% of total investable assets (not just one account). A –50% hit would cost ~5% overall—tolerable, not catastrophic.
Sector cap: ~20% is a yellow flag; >30% requires action. Diversify by sub-industry (e.g., software vs semis vs consumer tech) to soften sector shocks.
Sell rules beyond size: Investment thesis breaks, or Dividend Triangle (Revenue, EPS, Dividend growth) trends weaken for multiple quarters/years. These apply to winners and losers.

Timing & market context
New highs invite complacency. Trimming at extremes (end ’21 example with AAPL/MSFT) can soften the next drawdown—even if those names later recover—because you redeploy into other quality positions and keep balance.

Process beats perfection
You’ll never top-tick a trim. What matters: following your rules consistently so a single name (or sector) can’t derail your plan.

Practical playbook (step-by-step)

Set your dollar risk limit per stock. (“I can stand to lose $X.”)
Convert to a max weight using a –50% stress test.
Audit your portfolio across all accounts to find breaches (positions and sectors).
Trim back to target (Mike often takes a name from ~10% down to 7–8%).
Reallocate intentionally—preferably to underweight sectors or watchlist names with stronger Dividend Triangle trends.
Re-check your thesis & metrics each quarter; give elite names time to fix short-term wobbles, but don’t ignore sustained Triangle deterioration.