Warren Buffett on When NOT to Sell a Stock | Terry Leadership Speaker Series 2001

[Transcript]

AUDIENCE MEMBER: Mr. Buffett, good morning. In your comments about making mistakes and errors like that, can you talk a little bit about your sell discipline? When you’re in a position and you feel like it’s no longer good, and what criteria do you use to—when you just finally abandon it?

WARREN BUFFETT: Yeah, when I started out—the sell situation has changed over the years because when I started out, I had way more ideas than money. I mean, I would go through Moody's Manuals—I went through it page by page, and then I went through it again page by page. And I found stocks in there that I could understand that were selling at like 2x earnings, even 1x earnings.

Well, when you only have $10,000, that can get a little frustrating and if you don’t like to borrow money—which I never liked to borrow money. So, I was always coming up with more ideas than I had money, so I had to sell whatever I liked least to buy something new that just was compelling to me. And for a long time, I was in that mode.

And, now our problem is that we have more money than ideas. So we're—we—if you look at our annual report, which is on the internet under—at our homepage www.berkshirehathaway.com, you’ll see something in the back called The Economic Principles of Berkshire, and you'll see—which I believe in setting out for my—my partners.

They are my partners. I don’t look at them as shareholders, I look at them as partners. They’re going to be my partners for life. So, I want to tell them how I think, and if they don’t disagree with the way I think, that’s fine—but I don’t want them to—I don’t want them to be disappointed in me. You know, so—I lay out there and I say, in terms of our wholly-owned businesses, we’re not going to sell them no matter how much anybody offers us for them.

I mean, if somebody offers us 3x what something is worth—See’s Candies, the Buffalo News, Borsheims, whatever it might be, we’re not going to sell it. I may be wrong in having that approach. I know I’m not wrong if I owned 100% of Berkshire because that’s the way I want to live my life. I’ve got all the money I could possibly need. You know. it just amounts to a change in the newspaper story on my obituary and the amount of money that the foundation has.

And to break off relationships with people I like and people that have joined me because they think it’s a permanent home, to do that simply because somebody waves a big check at me would be like selling one of my children because somebody waved a big check. So, I won’t do that. And I want to tell my partners that I won’t do it so that they're not disappointed in me.

More and more, with certain stocks, we’ve got that approach. Now, if we were chronically short of funds and had all kinds of opportunities coming, we might have a somewhat different approach. But our inclination is not to sell things unless we get really discouraged perhaps with the management or we think the economic characteristics of the business have changed in a big way. I mean—and that happens.

So, but we’re not going to sell simply because it looks too high in all likelihood. I mean that—you can’t make that 100%, but it's—it’s a—that’s—that’s the principle under which we’re operating.

We’re generating, right now, $5 billion of cash a year at least. So, it's a $100 million every week. And, you know, just now, we’ve been talking here half an hour and I haven’t done a damn thing. So—

(Laughs)

It's you know—the real question is: How do you put it out intelligently? And, if we were selling things, it would be just that much more. So there may—there might—there may come a time when that would change, but we want to—

And, I have partners, shareholders—partners who would say, “If you can get 3x what See’s Candies is worth, why don’t you sell it?” And that’s why I want to be sure, before they come in, they know how I think on that. I mean, they're entitled to know that.

You really want to think for a minute, you know, If you’re going to get married and you want a marriage that’s going to last—not necessarily the happiest marriage, you know, or one that—Martha Stewart will talk about or anything—but you want a marriage that’s going to last, what quality do you look for in a spouse? One quality. Do you look for brains? Do you look for humor? Do you look for character? Do you look for beauty? No. You look for low expectations.

(Laughs)

That is the marriage that’s going to last—if you both have low expectations. I mean it—and I want my partners to be on the low side on expectations coming in, because I want the marriage to last. It’s a financial marriage when they join me at Berkshire. And, I don’t want them to think I’m going to do things that I'm not going to do.

So, that's—that's our guiding principle. The advice is all free. Marital advice and everything else.

(Laughs). Next.

Source: https://youtu.be/2a9Lx9J8uSs?si=hvfkap4Rvr_pCtVY

 

[YAPSS Takeaway]