Loyalty is a virtue between people. In a portfolio, it's a liability. An investor who feels loyal to a company, because she's used its products for years, admires its management, believes in its mission, is carrying an emotional attachment that will get in the way of the exit decisions sound portfolio management demands. The company has no idea she owns its shares. It gets nothing from her loyalty in any direct sense. And the loyalty doesn't serve her financial interests either. It serves only the psychological comfort of maintaining a relationship with something that cannot love her back.
The damage loyalty does is concentrated almost entirely in the decision to sell. Every school of portfolio management agrees that a position should be exited once the thesis no longer holds, once the price no longer offers an adequate return, or once something better comes along. These conditions arise, sooner or later, for every holding in every portfolio. But an investor loyal to a company will keep finding reasons to put off the exit, reasons that, absent the loyalty, would never have been strong enough to override the financial case for selling.
None of this is an argument against long holding periods. An investor who has held a compounding business for many years has genuine financial reasons to keep holding it, reasons that have nothing to do with loyalty. The distinction is between holding because the thesis still holds and the expected return is still adequate, and holding because selling would feel like betraying a company you've come to think of as a partner in your financial life. The first is sound portfolio management. The second is an emotional commitment that will eventually leave you refusing to exit a position that's stopped earning its place, and that refusal has a cost.
This is especially dangerous in concentrated portfolios, where one position can represent a large share of total wealth. An investor who has built up a large stake in a single company over many years, through direct purchases layered with reinvested dividends, may be sitting on something structurally dangerous, a portfolio where a single company's decline could wipe out a huge chunk of her wealth. The right response to that concentration is diversification, which means selling down the position. But loyalty to the company, combined with the anchoring effect of a long holding period and the emotional weight of all those accumulated gains, makes that sale psychologically brutal to actually carry out.
The fix is to adopt, deliberately and explicitly, the principle that no investment gets tenure in a portfolio. Every position, no matter how long it's been held, how much it's compounded, how much the investor admires the company behind it, stays in the portfolio for exactly one reason, the same reason as every other position: because it's currently the best use of the capital tied up in it. The moment it stops clearing that bar, whether the thesis has changed, the valuation no longer works, or a better alternative has shown up, it should be sold, with no regard for the history or the relationship built up around it.