1998: What criteria do you use to sell stock?

AUDIENCE MEMBER: Good morning. My name is Jad Khoury (PH). I’m from Gaithersburg, Maryland. I just want to thank you for sharing your wisdom.

And my question is, what criteria do you use to sell stock? I kind of understand how you buy it, but I’m not sure how you sell.

WARREN BUFFETT: Yeah. Well, the best thing to do is buy a stock that you don’t ever want to sell. I mean — and that’s what we’re trying to do.

And that’s true when we buy an entire business. I mean, we bought all of GEICO or we bought all of See’s Candy or The Buffalo News. We’re not buying those to resell.

I mean, what we’re trying to do is buy a business that we will be happy with if we own it the rest of our lives, and we expect to with those.

It’s the same principle applies to marketable securities. You get extra options with marketable securities. You can add to holdings. Obviously easier — we can never own more than a hundred percent of a business, but if we own 2 percent of a business and we like it at a given price, we can add and have 4 or 5 percent. So that’s an advantage.

Sometimes, if we need money to move to another sector, like we did last year, we will trim some holdings, but that doesn’t mean we’re negative on those businesses at all. I mean, we think they’re wonderful businesses or we wouldn’t own them.

And we would sell A, if we needed money for other things.

The GEICO stock that I bought in 1951, I sold in 1952. And it went on to be worth a hundred or more times — before the 1976 problems — 100 or more times what I’d paid. But I didn’t have the money to do something else. So you sell if you need money for something else.

You may sell if you believe the valuations between different kinds of markets are somewhat out of whack. And, you know, we have done a little trimming last year in that manner. But that could well be a mistake. I mean the real thing to do with a great business is just hang on for dear life.

Charlie?

CHARLIE MUNGER: Yes, but the sales that do happen, the ideal way is when you found something you like immensely better. Isn’t that obvious that’s the ideal way to sell?

WARREN BUFFETT: And incidentally, the ideal purchase is to find — is to have something that you already liked be selling at a price where you feel like buying more of it. I mean, we probably should have done more of that in the past in some situations.

But that’s the beauty of marketable securities. You really do — if you’re in a wonderful business, you do get a chance, periodically, maybe to double up in it, or something of the sort.

If the market — if the stock market were to sell a lot cheaper than it is now, we would probably be buying more of the businesses that we already own. They would certainly be the first ones that we would think about. They’re the businesses we like the best.

Charlie?

CHARLIE MUNGER: Nothing more.