Let Winners Run With Risk Controls
Preserve upside while trimming risk instead of exiting by arbitrary profit
- Difficulty
- Moderate
- Time to result
- ~ongoing to results
- Steps
- 6
- Confidence
- 97%
This rule replaces automatic profit-taking with thesis-based risk management. When a position rises, first determine whether the business outlook, valuation, and original assumptions still justify ownership. If concentration or short-term overextension creates risk, trim part of the holding or apply a trailing stop rather than reflexively liquidating everything. The retained position preserves access to nonlinear winners whose gains can drive long-term wealth. The method distinguishes being pleased with a profit from having a sound reason to sell. It does not prohibit exits: positions should still be closed when the thesis breaks, valuation becomes indefensible, liquidity changes, or portfolio risk exceeds tolerance. The objective is to control downside without imposing an arbitrary ceiling on upside.
Origin
Extracted from Masters in Business as Todd Harrison's answer to what he wished he had understood earlier in his investing career.
Core principles
- 01A predetermined profit target can truncate exceptional compounding
- 02Risk reduction does not require a complete exit
- 03Business value matters more than an arbitrary profit-and-loss number
- 04Trailing controls can protect gains while preserving exposure
How to run it
- 1
Revisit the thesis
Review the original reason for ownership and determine whether operating evidence has strengthened, weakened, or invalidated it.
Pro tip Compare current facts with the original written thesis rather than relying on memory.
Watch out A rising price is not evidence that business risk has disappeared.
- 2
Measure concentration
Calculate how the gain has changed the position's share of the portfolio and contribution to total risk.
Pro tip Set concentration limits before a position approaches them.
Watch out Letting winners run does not justify uncontrolled portfolio dominance.
- 3
Separate price from P&L
Ask whether the security is overvalued or merely profitable for you. Ignore arbitrary gain thresholds that have no connection to future return.
Pro tip Evaluate expected return from today's price as if initiating a new position.
Watch out Emotional attachment can disguise itself as long-term conviction.
- 4
Trim proportionately
If the position is overextended or concentrated, sell only enough to restore acceptable risk while retaining meaningful upside exposure.
Pro tip Define the target weight before placing the order.
Watch out Repeated small trims can unintentionally eliminate the entire winner.
- 5
Protect the remainder
Use trailing stops or explicit thesis-break conditions when they fit the asset and strategy.
Pro tip Base controls on volatility and fundamentals rather than round-number gains.
Watch out Tight stops can force exits during normal volatility.
- 6
Exit on invalidation
Close the remaining position when the thesis fails, expected return becomes unattractive, or risk can no longer be justified.
Pro tip Record the specific evidence responsible for the exit.
Watch out Letting winners run must not become refusing to sell.
In the wild
A stock bought at 2.50 rises quickly and becomes too large for the portfolio. The investor sells a modest portion to restore the target weight but retains the majority because the long-term business thesis remains intact.
→ Short-term concentration falls while the portfolio keeps exposure to further compounding.
Common mistakes
Selling at a preset dollar gain
An arbitrary P&L target says nothing about future business value. It can remove the few positions capable of producing outsized wealth.
Never trimming
Preserving upside does not require accepting unlimited concentration. Partial sales can control risk without ending the thesis.
Ignoring a broken thesis
Past gains do not justify continued ownership after fundamentals deteriorate. Winners should run only while the forward case remains attractive.
Is it for you?
Best for
Long-term investors managing profitable positions whose theses remain valid but whose prices or portfolio weights have risen.
Not ideal for
It is not ideal for short-horizon trades, deteriorating businesses, or positions that have exceeded strict risk limits.
From the transcript
“I think you would be just to hold onto your winners and let your winners run.”
“But there are different strategies you can trail your stops.”
“If you do that, you can make money, but you're never gonna get wealthy”
From the episode
Todd Harrison Discusses Biopharmaceutical Investments
Todd Harrison