Sign in Subscribe

Patience as a Competitive Advantage: How Buffett Holds Stocks for Decades

By sagebytes —

Buffett's Investment Best Practices

Insights from the 2003 Berkshire Hathaway Annual Letter

Business Quality Over Market Timing

  • Seek businesses with favorable and enduring economic characteristics
  • Focus on companies run by talented and honest managers
  • Purchase only at sensible prices
  • Prioritize entire businesses over stocks when valuations are similar

Financial Discipline

  • Never reach for yield by compromising on credit standards or extending maturities
  • Maintain substantial cash reserves for opportunistic investments
  • Eschew financial leverage except in specific, carefully calculated situations
  • "Charlie and I detest taking even small risks unless we feel we are being adequately compensated"

Patience and Conviction

  • Hold great businesses for the long term (Coca-Cola since 1994, American Express since 1998, Washington Post since 1973)
  • Avoid unnecessary portfolio turnover ("Brokers don't love us")
  • Accept that maintaining discipline sometimes means having underutilized capital
  • "It's a painful condition to be in – but not as painful as doing something stupid"

Accounting Skepticism

  • Be highly suspicious of accounting in complex financial instruments
  • Understand that disclosure documents often fail to reveal true risks, especially in derivatives
  • "No matter how financially sophisticated you are, you can't possibly learn from reading the disclosure documents of a derivatives-intensive company what risks lurk in its positions"
  • "The more you know about derivatives, the less you will feel you can learn from the disclosures"

Value Investing Fundamentals

  • Focus on intrinsic value, not book value or reported earnings
  • Recognize market cycles in asset classes (junk bonds attractive in 2002, unattractive in 2003)
  • "Yesterday's weeds are today being priced as flowers"
  • Don't fall in love with your investments (Buffett regrets not selling during "The Great Bubble")

Risk Management

  • Account for correlation risk across investments
  • Maintain ample capital and liquidity to exploit opportunities during market dislocations
  • Consider potential macro risks without making too many macro forecasts
  • "The cemetery for seers has a huge section set aside for macro forecasters"
  • Bull! by Maggie Mahar
  • The Smartest Guys in the Room by Bethany McLean and Peter Elkind
  • In an Uncertain World by Bob Rubin
  • The Intelligent Investor by Benjamin Graham (revised by Jason Zweig)