One of the great blue-chip turnaround stories in the stock market over the past few years has been Rolls-Royce (LSE: RR). Rolls-Royce shares have hit another all-time high this week and are now 1,144% higher than five years ago.

I sold my Rolls-Royce shares long before they got to anything like today’s level. Was that a mistake?

Hindsight is a great thing!

In fact, I unloaded my small stake in the aerospace engineer in 2023 when the Rolls-Royce share price was £1.47.

That already represented a 66% gain in just under a year. Still, since I sold, the share price has rocketed another 733% in around two and a half years.

From today’s perspective, of course, it can be easy to think that I sold too soon. But did I?

Balancing risk and reward

There are different schools of thought on this.

One is that investors ought to let their winners run. Doing that on this occasion would have meant I would now be sitting on a much bigger gain than the one I made.

But a share can go up and up and up – then down. One way to try and guard against this is setting a stop loss, which means the shares are automatically sold if they fall a certain amount. But since I sold, Rolls-Royce shares have had falls of over 10% on multiple occasions, notably autumn 2023 and this spring.

One of the challenges I find with setting a stop loss is deciding what level to use. If it is set at too small a fall, it may be easily triggered even when the long-term investment case for the share has not changed.

But if it is too big, I can be caught out in a short-lived ‘flash crash’, where a share price falls dramatically only for a short time before recovering. In such a case, the stop loss can mean the share is sold at a much lower price than it would cost to buy back just a few days later.

A different school of thought to letting winners run is that a profit is a profit. So, as an investor, I ought to measure my performance against what I am aiming for, not what I have missed out on. I tend towards that view.

Still fuel in the tank

I sold my Rolls-Royce shares for a reason.

Since selling, the company has changed management, improved its financial performance and repeatedly raised its targets. As last week’s strong interim results – and the recent record share price – show, Rolls is performing strongly. I think the share price could potentially move higher even from here.

Not all of that was predictable when I sold. However, then as now, I liked Rolls’ underlying strengths, from its large installed base of aircraft engines to operating in an industry with high barriers to entry.

But I sold because, at that time, I felt the share price did not accurately reflect the risk of a sudden unforeseen plunge in civil aviation demand. We have seen that happen for reasons from terrorist attacks to the pandemic.

Every investor’s risk tolerance is different. Personally, I do not regret selling my Rolls-Royce shares when I did. With the same risk in mind, I have no plans to buy more now.