Typically, when you are purchasing an undervalued stock, you are betting against the market. A stock in a company called, say, Company A, may be trading at $20. Suppose it's earning $3 per share, but isn't growing. Let's say you determine that the company is solid and stable, and you are confident that the company will earn $3 per share forever. Clearly, there is strong evidence that the stock is undervalued, and is likely worth buying. That is, you may have enough evidence to bet against the market.

A year later, the stock trades at $100 per share. If you want to sell, you'll only get $84 per share, assuming you pay capital gains taxes of 20%. Still, you can confidently predict that the company will earn about 3.4% on your money ($3 per share divided by 86 is 3.4%). This stock certainly appears to be overvalued, and is probably worth selling.

Now, let's look at another company, Company B. This company is also earning $3 per share, but it is growing, and its growth potential seems limitless. The company earns very high returns on invested capital, so any growth that occurs will generate significant shareholder value. The company is solid and has strong competitive advantages. And you have srong evidence that the company's industry won't contract in the future. You can now predict that future earnings will be at least $3 in the future; that is, there is a lower bound on expected earnings of $3. Suppose you can't prove that the company will grow at any specific rate, or that it will even grow at all. But it could grow at a tremendous rate. If it's trading at $30, it might be worth buying. The stock will likely do well even if the company doesn't grow. And if it does grow, it'll be a nice bonus. So, you decide to buy it at $30

Now, suppose the stock rises to $100. The company is still a good company, and it is still being managed well. If you sell, you'll pay capital gains taxes of $14 per share, or 14%. That is, by selling, you are betting that the market is overvaluing the stock by at least 14%. Now, if the stock were actually trading at $100-$14, or $86, you probably wouldn't buy, because you wouldn't have strong evidence that would justify the valuation. However, since the company has limitless growth potential, you can't set an upper bound on the value. If you sell, you're betting against the market, which is fine when you have strong enough evidence. But with this particular company, you might not have enough evidence to claim that the market is overvaluing the shares by 14%. That is, while you probably wouldn't want to buy the stock at $86, or even $56, you can't demonstrate that the company is worth selling at $100. And in the absence of any evidence, it might not be advisable to bet that the market is wrong by 14%. This justifies why it is reasonable to hold stocks of growing companies indefinitely, as long as the company remains solid.