E is for Exit Strategy:

When Does It Make Sense to Sell Assets?

Selling an asset can be just as important as buying one. While timing the market perfectly is impossible, there are situations where selling, or at least trimming a position, may be the prudent move.

Common Reasons to Sell

• The asset has run up significantly and now represents an outsized portion of a portfolio
• Valuations appear stretched relative to fundamentals
• Technological change threatens to make a product or business obsolete
• Risk management or rebalancing calls for reducing exposure

With stocks, art, and collectibles, selling often means paying taxes. While taxes matter, they should not be the sole reason for holding onto an overvalued investment. In some cases, the risk of a sharp decline outweighs the tax cost of selling.

When Assets Run Up: A Historical Lesson: Tulip Mania

A classic example of this dynamic is Tulip Mania. In the 1630s, the Dutch public became infatuated with tulip bulbs as speculative investments. Prices soared to extraordinary levels. At the peak, a single bulb sold for roughly six times the median annual salary. In some cases, one tulip was valued at the equivalent of a mansion along an Amsterdam canal.

The outcome was inevitable. By 1637, the tulip market collapsed.

The lesson is clear: having an exit strategy matters. Asset prices can rise quickly, driven by enthusiasm and speculation, but when valuations become detached from reality, the risk of a sharp reversal increases. When something appears significantly overpriced, selling, or reducing exposure, even if it involves taxes or difficult decisions, may be far preferable to holding on and risking substantial losses.

When Technology Makes an Asset Obsolete: Kodak

Kodak, the company behind the famous slogan “You press the button, we do the rest,” was a leader in photography for much of the 20th century. Founded in 1888, Kodak helped make photography accessible to the masses.

However, the company failed to adapt as digital photography emerged. Despite its early innovations, Kodak remained heavily invested in film, and by 2012, the company filed for bankruptcy.

The takeaway: even long-standing, well-known companies can lose value quickly if they fail to evolve. Investors should be cautious about tying themselves to businesses that risk becoming obsolete due to technological change.

The Dot‑Com Bubble: Growth Without Fundamentals Is Risky

When price is driven by excitement rather than earnings, having an exit strategy becomes essential.

In the late 1990s, the dot‑com bubble fueled a mania around internet-based startups. Technology stocks soared as investors poured money into companies with little or no earnings, simply because they were part of the “.com” craze.

From 1995, these stocks climbed for several years before the bubble burst, and many fell by more than 75%, wiping out huge amounts of investor capital.

Be cautious of hype. Rapid growth without solid fundamentals can collapse just as quickly as it rises.

When Alternative Assets Run Up in Value

The same lessons apply beyond stocks and technology. Art, rare collectibles, and other alternative investments can experience dramatic price swings driven by popularity or speculation rather than intrinsic value.

Some pieces of art or rare collectibles have sold for millions, only to see prices decline sharply when demand wanes. Like stocks or tech products, these assets require an exit strategy. Selling, or reducing exposure, at the right time is a critical part of preserving wealth.