I made a long journey between my initial thinking of holding a good investment forever to my current position of taking what I call a 50@50 profit target. I guess it is also a matter of the asset class you are investing in, your personality, and your methodology. I started with real estate and moved on to an exploration journey that got me to hyper-growth companies. (with liquidity- meaning, you can trade them)
Why hold an investment forever? (20/30/40 years)
Finding an excellent business that resonates with you, led by trusted owners, is rare. If you have something like that, stick with it.
Tax - Holding an excellent business that increases market share and makes smart capital allocations is one of the most powerful tax hacks.
What is a 50@50 profit taking?
The game I have been playing in the last few years is finding companies that didn't reach product-market fit "fast" but have the potential of finding it and the resources to execute it. If a tech ( especially software) company finds PMF, it will ignite hyper-growth, changing the valuation tremendously in three years. I am looking for a minimum 1-10 risk-reward, which means becoming ten times more valuable in three years. In that case, I will take 50% of the chips off the table at five times the original valuation.
Why selling at 50% target profit?
A hyper-growth stage can usually last for just a few years. We are talking 100% YoY, and it is hard to continue to grow like that.
Hyper Growth companies have hyper volatility, and what goes up fast also comes down. Even if the company is doing super well, having liquidity means that any tale event can hurt the company's valuation. If it does happen and you did take a profit, you can use it to increase your position or own the same with less capital.
Leave some upside to the buyer- When I sold my real-estate property, I had some conversations with the buyer, and I got to know him. I knew I was getting a good deal but also that he had enough upside left.
Why sell only 50% of the position?
The market reaction to hyper-growth can sometimes surprise you, and the valuation will go twenty times higher or more than you thought it could do ten times.
The hyper-growth can increase or last longer.
Companies are looking for long-term capital, and this way, you stay part of it.
Staying disciplined about this framework is hard when things start moving in the right direction. #DisciplineEqualsFreedom I would love to hear insights or other frameworks.