Learn to invest with Buffett

Chapter 52

Chapter 8 Section 4 Sell the original stock when you find a more attractive target

Perhaps a better strategy for most investors is not to judge where the top is and the bottom is, but to hold on.Only when you find a better investment opportunity, sell the original stock and buy new stock.
--Warren Buffett
The above paragraph of Buffett once again emphasized the importance of selling.Everyone knows the importance of stock selection and buying timing, but the importance of exit timing is often overlooked. No matter how good a stock you choose, once you find that it is no longer as attractive as it was at the beginning, you should pay attention to it. Resolutely sell.

In 1991, Buffett's Berkshire Hathaway invested nearly 2.5 million US dollars to buy 3127.4 million shares of Guinness Plc, accounting for 1.6% of the total shares of Guinness Plc.At that time, the Guinness Company was the world's largest company producing and selling famous alcoholic beverages, the fourth largest exporter and the eleventh largest company in the UK.But for this stock, he sold it decisively by 4 because it had no room for profit.

As early as April 2003, when the Chinese stock market was in a downturn, Buffett invested heavily in 4 billion PetroChina H shares at a price of about HK$1.6-1.7 per share. It is the only Chinese stock purchased by Buffett that can be found in public information.But what is puzzling is that almost all of the 23.4 billion PetroChina H shares were sold out at around 11 yuan, and this is against the background of favorable internal and external circumstances that oil prices have reached new highs and PetroChina is about to issue additional A shares.Since Buffett believes that PetroChina is a good company, why should he sell the stock?First of all, the price of oil is an important basis, because the profits of oil companies mainly depend on the price of oil. If oil is at $15 a barrel, the situation is very optimistic; if the price of oil reaches $30, it does not mean that it will definitely fall, but at least the situation Not so optimistic anymore.A very important reason why Buffett buys and sells PetroChina is oil prices.When oil prices are low, he believes that oil prices will rise, and oil companies will naturally benefit from it, so he bought PetroChina; when oil prices are high, he believes that the possibility of oil prices continuing to rise is small, Then, it will be very difficult for the oil company to increase its profits substantially, so he chose to sell stocks.

Buffett constantly measures the quality of the businesses he has invested in by the same criteria he uses when investing.If one of his stocks no longer met one of his investment criteria, he would sell it, regardless of other factors.Buffett believes that the current rise in China's stock market has been very large, and people are still scrambling to enter the market regardless of risks.Because of this, he did not hesitate to sell PetroChina shares.

Buffett never invests blindly without knowing when to exit.That's the mantra of his investing, even though from the start, Buffett was taught by Graham to try to buy cheap stocks.But this didn't get him any real benefit.Later, influenced by Fisher and Munger and experienced countless investment experiences, after spending 20 years understanding the importance of buying good companies, Buffett sold a large number of stocks in the company he originally held.These stocks no longer have the slightest attraction in his eyes.And just as he did in 1994, when Guinness wasn't as competitive as he thought, he sold the stock.

As for why he did this, it is based on the following considerations:
1. Maximized profit growth is what every investor hopes for.When you find a more attractive company, it is likely to be more suitable for you than the original project you invested in, and at this time, everyone will tend to choose the attractive side.
2. Fisher once taught him that investing in the stocks of multiple companies is not necessarily wiser than investing in a few concentrated stocks.Too many diversified investments and too many companies represent too many risks.Putting your eggs in multiple baskets will not bring you success in the stock market.Instead, what it brings you may be meager benefits and too much energy investment.Buffett has always believed in this principle and only invested in a small number of companies.

3. Based on the first two reasons, Buffett believes that when encountering more attractive companies, he will definitely sell those relatively less attractive stocks.Only in this way can the investment be optimized and earn the most money with the least effort.His goal is not to buy all the stocks whose prices are increasing, but to rationally allocate his energy and resources to maximize returns within his ability.

When Buffett encounters more attractive companies, he will definitely sell those relatively less attractive stocks, because only in this way can he optimize his investment, allocate his energy and resources reasonably, and use the least amount of energy and resources. resources to maximize profits.Of course, some investors tend to invest their funds in the stocks of multiple companies, but in fact, this approach is not necessarily wiser than investing in a few concentrated stocks.

Investment motto:

The wisest thing to do is to throw out decisively when you find that the existing holdings have lost their original attractiveness, and look for the next target that is enough to make your heart beat.

(End of this chapter)