“In fact, when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.” — Warren Buffett, 1988 Berkshire Hathaway Letter to Shareholders
You might have read this quote before. It’s cited a lot. People often use this quote to promote the idea that you should buy a stock and hold forever.
This is particularly true in the dividend community. Investors often hold onto a dividend payer because they are getting “paid to wait.”
What’s often left out is the next sentence which is far more important.
“We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds.” — Warren Buffett, 1988 Berkshire Hathaway Letter to Shareholders
This second sentence seems to contradict the first. He’s saying that most investors are quick to take profits on high-flying stocks, while they hang onto losing businesses too long.
In other words, he’s advocating NOT selling a stock just because it’s been doing so well. He’s also advocating TO sell a stock that has been doing poorly.