AUDIENCE MEMBER: Hello, Mr. Buffett and Mr. Munger. How do you justify holding stocks forever when the fundamentals have permanently changed?
WARREN BUFFETT: Well, the answer is we don't. You know, and if we lose confidence in the management, if we lose confidence in the durability of the competitive advantage, if we recognize we made a mistake when we went into it — we sell plenty of times. So it's not unheard of.
On the other hand, if you really get a wonderful business with outstanding management — but mostly the wonderful business part of it — when in doubt, keep holding. But it's no inviolable rule.
Now, among the businesses we own, not just securities we own, we have an attitude, which we express in our economic principles, that when we buy a business it's for keeps.
And we make only two exceptions: when they promise to start losing money indefinitely or if we have major labor problems. But otherwise, we are not going to sell something just 'cause we get offered more money for it, even than it's worth.
And that's a peculiarity we have. And we want our partners to know about that.
We do think it probably helps us in terms of buying businesses over time. It's also the way we want to run our business.
But with stocks, bonds, we sell them. But we're more reluctant to sell them than most people. I mean, if we made the right decision going on, we like to ride that a very long time. And we've owned many — we've owned some stocks for decades.
But if the competitive advantage disappears, if we really lose faith in the management, if we were wrong in the original analysis — and that happens — we sell. Or if we find something more attractive —
Normally we have plenty of money around. But in September of last year, late September, we had committed to put 6.6 billion in Wrigley. and then Goldman Sachs needed 5 billion, GE needed 3 billion.
I sold a couple billion dollars' worth of J&J just because I didn't like getting our cash level down below a certain point, under the circumstances that existed then.
That not was a negative decision on J&J. It just — it meant that I wanted a couple billion more around. And I saw an opportunity to do something that I probably wouldn't see too much later. Whereas, I could always buy J&J back at a later date. But that's an unusual situation.
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When to sell a stock?
1. Lose confidence in management.
2. Lose confidence in the durable competitive advantage.
3. Recognize it was a mistake.
4. Found something more attractive.