In his recent interview with Barry Ritholz, Tom Gayner discussed the idea of not selling your winners. Here’s an excerpt from the interview:
RITHOLTZ: So there are two data points I’m kind of fascinated about. One is, in your public investments, your 10 largest holdings, they’re almost half your portfolio. They’re about 45 percent. That’s pretty unusual.
When I look at the average, let’s look at a stock mutual fund, the top 10 holdings is usually way below 30 percent. Tell us why you approach this with such a concentrated bet on those top 10 stocks.
GAYNER: Well, I think there are a couple of things that come together, and — and one of my great investment teachers was my grandmother, so let me get to her in just a minute. Now, obviously those 10 have worked, and those have been circumstances where we’re basically right and had a high degree of confidence in order to make some substantial bets to — to put them in the portfolio at that size.
But then time and being right about your fundamental underwriting of the business kind of is your friend. As Charlie Munger says, you know, time is the friend of a wonderful business and the enemy of a mediocre business. So, here’s — here’s my grandmother story.
So, when I was a kid and — and a — a nerd at that, on Friday nights unfortunately, instead of being able to get a date, sometimes I would — I would sit with my grandmother and we will watch Wall Street Week with Louis Rukeyser. And my grandmother, she was widowed at — and my — my grandfather had died, and she was one of the types of widows that basically never made any substantive decisions after that.
So, she remained in the same house, his suits hung from the rack in the closet, his shoes were on the floor, and being just a small town local businessman in the 1960’s, they would have been the type that, you know, they — they drink coffee at the diner together and they would talk about their stock portfolio and that sort of thing. That’s what small town business people did. And he had a 12, 15 stock little portfolio. It’s — it’s not massive sums of money. And those 12, 13, 14 stocks that my grandfather had when he died, my grandmother held those until she died.
Now within those — that — that little portfolio, there was Lockheed Martin and Pepsi. Now the fact of the matter is the other 10 holdings could have gone to zero.
GAYNER: And it wouldn’t matter.
GAYNER: The — the total — I mean, I bet my grandmother was at the 95th percentile in investment returns, basically, because she caught two mega winners that she was able to hold for 30 years. And in terms of the growing dividends and — and funding her pleasant, but modest lifestyle, it did that.
And I observed that basically when — when you’re right about something, don’t — don’t get off the train as if that train is going to — going to keep rolling. We’re — we’re both searching for who we should attribute these quotes to, but I — I think it might have been Peter Lynch who talked about that — that human tendency to want to, you know, sell your winner (inaudible) …
RITHOLTZ: Ring the bell, right.
GAYNER: … (inaudible) he rings (inaudible), well, that’s — that’s a — that’s pulling the flowers and watering the weeds.
RITHOLTZ: That’s right.
GAYNER: So …
RITHOLTZ: That is the Peter Lynch quote.
GAYNER: Exactly. So …
RITHOLTZ: So …
GAYNER: … so I’m not the smartest guy (inaudible) trying to have to be the dumbest. If I got a flower that’s blooming, let it grow.
You can listen to the entire interview here:
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