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Warren Buffett, renowned for advocating a “forever” holding period for stocks, often finds himself clarifying that this philosophy doesn’t equate to never selling. While his enduring positions in Coca Cola and American Express span decades, Buffett has, in fact, parted ways with various holdings over the years, shedding light on the dynamic nature of his investment strategy.
Contrary to the misconception that Buffett rarely sells, recent instances, such as divesting from airline stocks in 2020 (American, Delta, United, and Southwest) amid the COVID-19 impact, emphasize his willingness to make strategic decisions based on changing circumstances.
Buffett acknowledges that selling isn’t his default inclination, stating, “It’s not their inclination to sell,” but the reality is that he engages in selling stocks regularly. The key determinant for Buffett to part with a stock is often a negative shift in the company’s competitive advantage.
Reflecting on this aspect, Buffett noted at the 2002 Berkshire Hathaway Annual Meeting, “We probably had one view of the long-term competitive advantage of the company at the time we bought it, and we may have modified that.” He emphasized that while the original decision might have been based on a perceived strong competitive position, changes over time could erode those strengths.
Illustrating this, Buffett cited the example of the newspaper industry in 1970, where he and Charlie Munger considered it an impregnable franchise. However, industry dynamics shifted over time, prompting a reassessment of their initial views.
For stocks exhibiting robust revenues, consistent dividends, and a promising future, Buffett advocates holding onto them without setting arbitrary selling prices. As he once emphasized, “The real thing to do with a great business is just hang on for dear life.” However, when a company’s prospects falter, Buffett sees no need to cling to it indefinitely, acknowledging the importance of adaptability in investment decisions.
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© 2023 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell a stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.