I had a buyer who insisted that he had to keep 24 pieces of a particular item in stock. It was a "must have" item, he told me time and time again. Fortunately, we have a POS system that tracks the sales of these "must haves". In the previous 18 months he had sold exactly one.
I define "must haves" as items people come in asking for by name. If your customer walks through the front door and says, "Where is...?", that is a must have. If you bought 24 of an item and 18 months later you still have 23, that is a must go.
The problem we often run into is two-fold. First, we believe strongly in the products we buy. If we didn't we wouldn't (shouldn't?) buy them in the first place. Second, we don't like to admit our mistakes. So we end up marrying our inventory, sticking with them far longer than we should, hoping things will work out.
Don't marry your inventory. Instead think of your relationship with your inventory as more of a foster parent trying to find each item its forever home. Your inventory is supposed to leave you - the quicker, the better! Your inventory needs to move on, create new relationships. Your job is to help it go. Some of your inventory is so good at meeting new people that it goes easily and often. Some takes time (and discounting).
So accept that you will make buying mistakes. We all do. Accept that your inventory is not your partner. Change the relationship dynamic and do what you have to do to move it out. Pack the bags and smile every time you place your inventory in a new home. The good news is that there will always be more inventory to replace the ones you sent away.
PS Not sure if you have married your inventory? Check out my e-Book Inventory Management (free download) and do a little math to see if your inventory levels are where they should be.
PPS How long should you hold onto something before you discount it? It depends on the type of product you carry and the type of retailer you are. I have retail friends who give a product 30 days to prove their worth. I know other retailers who give it one quarter or season. I like to give my toys one Christmas to find their forever home on their own before I step in to help. It all depends on the product and type of store.