I hear many local investors preached about Unker Buffy and used him as the role model for the buy and hold investing strategy.
Remember in an investment, one buys the stock which represents a company with the wonderful business and the idea of course is to hold on to the investment forever.
However, there are two important exceptions to this simple investing idea.
1. The stock must remain a good company. That is the wonderful business must remain intact.
Many fails to understand this simple point. Companies do go bad. For example, the fundamental economic of the business do changes and sometimes these changes are permanent, which ultimately could render a good business poor. Owners do change. Yes what should we do when owners change and the new owners are simply lacking? Why should we continue to be an investor? Shouldn't one sell when such events occur?
2. Market do really go out of whack.
Yes, they do. And this is why investors can go bargain or value happening and if they don't go out of whack, good old Unker Buffy can just retire. Needless to say, market goes out of whack, both ways. Yes they do. Stocks can be insanely cheap but they can also be insanely overpriced. Well, what do you want to do when it's insanely overpriced? Yes, sometimes selling makes logical sense.
Anyway, here's an article on CNBC showing Berkshire disposal of shares. Warren Buffett's Berkshire Hathaway Sells Lots of Kraft (And Other Stocks) in First Quarter
Well what's my point?
Warren Buffet and Berkshire do SELL their shares.
Do not misunderstand this posting. This is not a posting urging you to simply sell but rather to remind you that sometimes it does make logical sense to sell. Yes, sometimes the justification to sell the shares are real. So do not get hung up on what some bad investment advice suggesting that you should hold your shares forever, for decades.
Remember nothing last forever. Stock markets can crash, good stocks can turn bad, good stocks can be insanely overpriced. So what do you wanna do about it?
Hold it forever and ever, for eternity?
And are you even sure you that the stock you are holding, should be considered a good stock? That is, is it really a stock which has a wonderful business? What if it's a average stock? Or what if it's really below average stock? Would holding it for eternity sake help you make money from a poor investment?
And sometimes we can overpay for our investment for the so-called good stock and holding it for decades would not help and erase the fact that we did make the mistake of overpaying for our investment!
Just because some local investing sifu says so?
Remember sometimes eternity does not work in investing. Yes, sometimes.
Berkshire pared its holdings in Kraft because it did a lot of stupid things in the acquisition of Cadbury and selling off the pizza business.
ReplyDeleteWell.. that would be a justifiable reason to sell, yes?
ReplyDeleteAs they say.. if you have to sell, you have to...
Not selling it just for the sake of the 'buy and hold forever' principal just makes no sense.
The buy-and-hold-forever mantra is widely attributed to Buffet, and his mentor, Ben Graham.
ReplyDeleteBut in recent months, Buffet's cachet has fallen considerably. I remember reading somewhere that his festive card mailings wishes "may you live until you see Berkshire split".
It was meant that you will live "forever". So, it is bad news that BRK.B split recently. There goes another market maxim out the window.
Cheers, Moolah.
ReplyDeleteI always admire Buffett as a brilliant investor but never heed nor follow his investment strategy blindly.
He is not god. He cant be right in everything including making investment decisions. But yet, many Malaysians still follow him like a god who can never be wrong.
There are a lot of evidence available which prove that Buffett actually dont hold forever. The few stocks which he holds forever are mostly stocks which pay dividends or provide huge cash flow. In Malaysian context, they are the bulky defensive stocks.
It is good to adopt this strategy when one has a deep pocket though like Alwaleed. Unfortunately, I aint got a deep pocket.
JP: One thing about deep pockets.. I hate such thinking. Sorry but I do. :/
ReplyDeleteCheck this older posting.
http://whereiszemoola.blogspot.com/2010/03/having-deep-pockets.html
:> The deep pockets issue is so rather risky.
In my flawed opinion, having a deep pocket does not guarantee one success in the stock market. One can buy and buy and buy and buy and buy as much as they want because they have a deep pocket.
But what is one really doing in reality?
Well for me, in my flawed opinion, they are only buying and buying and buying and buying more of the same stuff.
It has no relationship to whether the decision to buy the stock is correct or not in the first place.
Same with holding the stocks just because one have deep pockets. What's one doing? Me? I only see one holding a stock just because they have money. That's all. Again, it does not even say if their reasoning to buy and to hold the stock is correct.
And I am sure you know that if a stock selection is really bad, holding on to it for as long as possible or buying more, usually does not correct the initial mistake to buy the stock!
"Having a deep pocket" is my shortcut way of describing Buffett as the owner of multiple businesses, providing him with ample cash flow. Buffett doesnt play with the excess capital. He is so wise in making the correct investment decisions that he has grown Berkshire into the size it became today. I think "big capital" should be the correct word to substitute it. When one has a very small initial capital to invest, wouldnt it be less efficient to put the money into a mature, cash producing company?
ReplyDeleteI apologise for creating this little misunderstanding. Thanks for the correction Moolah!
JP: you really do not need to apologise at all since you were only expressing your views. :D
ReplyDeleteIn the stock market there are so many ways to make money. There's no absolute rightness. Really. Most important thing always is know when we are wrong.