May 2016
Other things equal, high stock prices today spring from good past returns, but are not so good for future returns. Therefore, if the price of an existing investment rises enough—or if the business outlook deteriorates enough—such that the amount of expected return left for the future becomes small, we sell the investment or at least trim our holdings. Similarly, when our expectations for a given company’s stock improve sufficiently, we buy it or add to an existing position. On average, our holding period between purchase and sale is about 4.5 years, but sometimes it is very short, and sometimes it is more than 10 years. We can’t change the realities of the business world. We simply seek to intelligently anticipate and react to them.