Quote:
Originally Posted by crc_error
Lets look at top market performers.. Warren Buffet.. now does he sell up and buy back when shares represent good value?
No he buys and holds, and then buys more when he feels he is buying at a discount.
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Incorrect. WB buys when the intrinsic value of the businesses are low and sells when they are valued at way above their intrinsic value, if he beleives there are opportunities available where he can achieve a higher return. From the outside looking in, it appears to me that he is willing to sell shares in businesses that are selling well above their intrinsic value BH owns and hold cash until the right opportunity comes along, but I could be wrong.
This makes sense - why hold shares that at their current value may achieve a return of, for example 5% over the long term, when you can sell those holdings and buy shares that can achieve a potential return of say, 15%. Only with a small handful of holdings does he hold them permanently.
Let's use a rough example. Say you hold ABC and you've held them for 10 years and they're valued at this point in time at $20. At $20 they might achieve a long term return based on curent earnings of 7%. You've done your research on XYZ and you determine that based on past earnings and management and etc that at their current value of $5 they might achieve a return of 20% over the long term. Would you not sell your shares in ABC and use that money to buy XYZ?
Sure, you might say 'But that's prediction.' But isn't saying 'If I continue to hold ABC and their returns might improve' also prediction? WB does predict to a certain degree - but the prediction is reduced as much as humanly possible based on information publicly available. No one can say with absolute certainty what is going to happen in the future. So from what I've read on WB, he makes his decisions on which businesses to invest in based on what he predicts to produce the best possible returns over the long term.
I feel that this is where a lot of people tend to fail in picking businesses - they tend to get emotionally invested in their picks and don't want to admit that there ma be better opportunities out there. As Peter Lynch says in One Up On Wall Street - even the best only get it right at most 50% of the time.
Also, you state that you trade shares, which is a whole different ballgame to what WB does. You speculate on shares, whereas he invests in businesses. Note that I'm not saying his way is better than yours - just saying that your strategies are totally different, therefore there's no point in comparing the two.
Mark
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This is a general comment only and does not constitute advice. Before making legal or financial decisions you should seek advice from a professional adviser, who can take into account your specific circumstances and investment goals.
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Dave
