Hope Is Not an Exit Strategy

My son asked me once: “Mom, you’re great at finding these companies. But what’s your system for getting out?”

I started to answer. Then I stopped.

I had entry criteria I could recite in my sleep. Valuation screens. Margin of safety requirements. Thesis checklists. I could tell you exactly why I bought something - chapter and verse.

But when do I sell?

I realized I’d never written it down.

The Silence That Cost Me Money

That conversation happened over a decade ago. I’d been investing for over twenty years at that point. And my son, who’d been investing for maybe three, had just found the hole in my process.

The worst part? I knew he was right.

I thought about the positions I’d held too long. The ones where the thesis had cracked but I kept finding reasons to stay. “It’s already down 40%, might as well wait for a bounce.” “Management says next quarter will be better.” “The valuation is too cheap to sell now.”

None of those were systems. They were rationalizations.

I told him what most investors say when you ask about exits:

“I’ll know when it’s time.”

“When it hits my target.”

“When it stops working.”

He looked at me the way only a son can. “Mom, that sounds like gambling with extra steps.”

He wasn’t wrong.

Why Exits Are Harder

Entry is the hunt. You’re looking for something the market missed. You feel smart when you find it.

Exit is the reckoning. You’re either admitting you were wrong, or letting go of something that worked. Neither feels good.

So most people - including me, for years - build elaborate entry frameworks and wing the exits. Then they hold losers too long, sell winners too early, and wonder why their returns don’t match their stock picks.

I had to learn this the expensive way.

The Stock That Taught Me

I won’t name it. But I’ll tell you what happened.

I bought it cheap. Solid balance sheet, decent moat, trading below intrinsic value. Classic value setup. The thesis was simple: the market was overreacting to a temporary headwind.

It dropped 15% after I bought. I added more. Thesis unchanged, right? Cheaper now.

It dropped another 20%. I held. Still cheap on the numbers.

Eighteen months later, I finally sold - down 60% from my first purchase. The thesis hadn’t just cracked. It had shattered. The “temporary” headwind was actually a permanent shift in the industry. I just didn’t want to see it.

Looking back, there were signs by month four. I ignored them. I had conviction. I had a spreadsheet that said I was right.

I had hope.

My son asked me later: “When did you know it was over?”

“Honestly? Probably around month six.”

“So why’d you hold for another year?”

I didn’t have a good answer.

The Three Fake Exit Strategies

After that, I wrote down what most investors actually do. Including what I’d been doing.

Hope: “I’ll know when it’s time.” You won’t. By the time it’s obvious, the damage is done. Hope is a great thing in life. It’s a terrible thing in a portfolio.

Arbitrary targets: “I’ll sell at $200.” Great. You’ll watch it drop from $198 and tell yourself “close enough” doesn’t count. The stock doesn’t know your number.

Feelings: Sell when scared, hold when greedy. This is backwards, and it’s what most people actually do. I know because I did it.

None of these are systems. They’re just hope wearing different costumes.

What a Real Exit Asks

After the stock that taught me, I built an actual framework. Three questions. That’s it.

Has the thesis broken? Not “is the stock down?” The actual reason I bought it - is it still true? Has the competitive advantage eroded? Has management changed direction? Has the balance sheet deteriorated?

Here’s the test: Would I buy this today at this price with fresh money? If the answer is no, I shouldn’t hold it with old money.

Has the thesis played out? The market caught up. The undervaluation I spotted is gone. The stock isn’t bad now - the easy money is just made. Time to redeploy to something with better odds.

Has valuation gone insane? Mr. Market got drunk and priced in five years of growth in six months. When the price implies a future that’s unrealistic, I take the gift. I’m not smarter than the fundamentals.

That’s it. Red or green doesn’t matter. Which bucket does this position fall into? If none - I hold.

I told my son the framework.

“Which one’s the hardest?” he asked.

I didn’t have to think about it.

The Hardest One

Thesis broken. By a mile.

When you’re down 30%, you have to decide: is this the market being wrong, or is this me being wrong?

Your ego wants it to be the market. Always.

There’s no formula for that judgment. It only comes from reps - from being wrong enough times that you learn to recognize the smell of a broken thesis before your ego finishes rationalizing it.

That stock I held for eighteen months? By month six, I could smell it. I just didn’t want to admit what I was smelling.

Now I know. The discomfort of selling at a loss is temporary. The damage of holding a broken thesis is permanent.

What My Son Knows Now

He’s been investing for over a decade now. He’s made his own mistakes. Paid his own tuition.

Last year, he called me about a position that was down 35%. “I think the thesis is broken,” he said. “I’m selling tomorrow.”

“What changed?”

He told me. It was clear. It was specific. It wasn’t feelings.

“Good,” I said. “That’s the right call.”

He laughed. “Took me long enough to learn it.”

“It takes everyone long enough.”

We both know there’s more tuition ahead. There always is. But at least he’s asking the right questions now.

And he has a system - not just for getting in, but for getting out.

Entries are about being smart. Exits are about being honest.