As Charlie Munger used to say, the best holding period for a good company is forever, although one should always consider selling based on opportunity cost relative to other available investments.
This opportunity cost is not as straight forward as it first seems. Because of the tax bleed of crystalizing a capital gain, it may be more beneficial to hold on to a long term performer delivering 10% a year and so compound gross value, than selling it to switch into a stock delivering 12% where you are only able to invest net value after having settled the tax liability on your prior crystalized gain.
The quotes from Mr. Munger have saved me from making stupid decisions a few times.
I'm curious, do you also follow the approach of focused investing in just 3-4 stocks like Charles Munger? I don't have enough confidence in my abilities for that.
My opinion on this topic is simple. You don't start off super concentrated. No one knows which companies will encounter headwinds or tailwinds in advance. Not even Buffett who admitted to finding exceptional companies approximately once every 5 years over his career. That means that most investments would have been either mediocre or mistakes.
So, on a best efforts basis, you select maybe 15 or 20 stocks that you really like. Over time you can cut the weeds and hold on to the flowers. On an opportunity cost basis you may also swap out of one position into another if something exceptional comes along, but turnover should be relatively low.
If you are lucky maybe two of your holdings will prove exceptional and, over a long holding period, will grow to become dominant positions in your portfolio. Compounding does that.
This is how you end up super concentrated. It isn't by design, it's by default if you are a good investor.
It's how Buffett ended up with such a large stake in Apple.
Great write up. Fully agree with professor Siegel.
Not investing would be the biggest mistake.
The only thing we can do is approach the valuation with a sense of proportion; quality has its price. But not infinitely.
The bigger question would be whether to keep existing old Mag7 positions or swap them for other more promising companies....
As Charlie Munger used to say, the best holding period for a good company is forever, although one should always consider selling based on opportunity cost relative to other available investments.
This opportunity cost is not as straight forward as it first seems. Because of the tax bleed of crystalizing a capital gain, it may be more beneficial to hold on to a long term performer delivering 10% a year and so compound gross value, than selling it to switch into a stock delivering 12% where you are only able to invest net value after having settled the tax liability on your prior crystalized gain.
I explore that topic in more detail here: https://rockandturner.substack.com/p/investing-subconscious-myopia
Thanks for pointing me to this article.
The quotes from Mr. Munger have saved me from making stupid decisions a few times.
I'm curious, do you also follow the approach of focused investing in just 3-4 stocks like Charles Munger? I don't have enough confidence in my abilities for that.
"Do I invest in a super concentrated portfolio?"
My opinion on this topic is simple. You don't start off super concentrated. No one knows which companies will encounter headwinds or tailwinds in advance. Not even Buffett who admitted to finding exceptional companies approximately once every 5 years over his career. That means that most investments would have been either mediocre or mistakes.
So, on a best efforts basis, you select maybe 15 or 20 stocks that you really like. Over time you can cut the weeds and hold on to the flowers. On an opportunity cost basis you may also swap out of one position into another if something exceptional comes along, but turnover should be relatively low.
If you are lucky maybe two of your holdings will prove exceptional and, over a long holding period, will grow to become dominant positions in your portfolio. Compounding does that.
This is how you end up super concentrated. It isn't by design, it's by default if you are a good investor.
It's how Buffett ended up with such a large stake in Apple.