Buffett discusses when to sell and how to get into early investments

Warren Buffett is the billionaire head of Berkshire Hathaway and one of the world’s most famous investors.

In 1996, Buffett speaks about when to sell your stocks, the dangers of trading vs. investing, how to spot wonderful businesses and more.

Warren Buffett ( Trades , Portfolio ) is arguably the greatest investor of all time. Generations of investors have learned to succeed thanks to his storied investing career.

In a lecture at the University of North Carolina in 1996, Buffett spoke on various topics such as when to sell your stocks, the dangers of trading vs. investing, how to spot wonderful businesses and more. This is the second part of my summary of this interview; part one was on predicting the stock market, business brands and his investing strategy.

The early years

In the 1950s and 1960s Buffett ran an investment partnership that produced an incredible annual return of nearly 30% per year for 13 years. Then in 1965, Buffett paid just $12 per share for an old textile company called Berkshire Hathaway (

BRK.A , Financial )( BRK.B , Financial ), which now trades at over $418,000 per Class A share as the world’s largest investing conglomerate (the Class A shares have famously never been split, which is why the cheaper Class B shares were created).

In 1996, Buffett’s Berkshire owned shares in Coca Cola (

KO , Financial ), American Express ( AXP , Financial ), Gillette and more. Berkshire also owned 100% of companies that made up its operating business, such as See’s Candies and Nebraska Furniture Mart.

When to sell stocks

Finding wonderful businesses is difficult, and thus when Buffett finds one he likes to “hold on forever.” He likes to say that “time is the enemy of the poor business” but the “friend of a wonderful business.” He aims to sell stocks only when the long-term fundamentals of a business have changed or the moat has started to become eroded. When this occurs, he has no problem selling stocks. Another time to sell a stock according to Buffett is when you have a greater investment opportunity elsewhere. For example, let’s say you have an investment with an expected return of ~10%, but now find an investment with a return potential of 15%, so you may wish to move your funds over. However, it should be noted that it is best to think in terms of risk-adjusted returns, as ideally, you are looking for the highest return with the lowest risk.

In technology businesses or growth stocks, potential returns can be very high, but also there is alot of intrinsic risk as these types of businesses tend to generate high competition, which was especially true during the dot-com bubble of the late 90s. Buffett tends to stay away from many of these stocks as he finds it difficult to pick the winner. He looks for “one-foot hurdles” to step over, not “seven-foot ones.”

Investing mistakes

Buffett highlights that he tends to make more investing mistakes when he has a lot of “cash around.” This reminds me of the quantitative easing-driven market bubble in the U.S. in 2020 and 2021. When more cash is flowing, less thought seems to go into each investment.

Despite this, Buffett states he hasn’t made many bad investments that have materially impacted Berkshire’s net worth. However, he has made many mistakes of “omission.” A key example was Disney (

DIS , Financial ), which in 1966 was trading at a market cap of just $80 million. Buffett bought 5% of the stock for $4 million but says he should have loaded up the truck. In fact, he sold it for $6 million “about a year later.” That 5% would have been worth $1 billion by 1996 and a staggering $10 billion by 2022.

In 1966, Disney invested $17 million building the pirates ride alone. Buffett jokes that the company was “selling at less than five times rides.”

Nebraska Furniture Mart Buffett’s investment into Nebraska Furniture Mart was driven strongly by the business founder Rose Blumkin (“Mrs. B”) who was truly committed to the business. Mrs. B was born in Belarus in 1893 and arrived in the U.S. in 1917 when she couldn’t speak a word of English. She brought with her seven siblings and started the furniture store with just $500 in 1937. Blumkin worked seven days per week according to Buffett and was truly committed to the business. By 1996, […]

source Warren Buffett’s 1996 Advice on Investing Mistakes

editor Stocks ,

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