During his recent interview on The Boyar Podcast, Tom Gayner discusses some great reasons for not selling a stock. Here’s an excerpt from the interview:
Gayner: Well if I can find the next Berkshire or the next Home Depot, not that much. One or two ideas a year really power the investment returns, and we do tend to hold on to things that we own.
Berkshire was the very first stock I bought for Markel when I joined in 1990. Home Depot we just talked about, that would date back to 2008, which is now 14 years.
So the portfolio turnover generally speaking is a single digit percentage. Well we certainly try to be reasonably aware of what the current quarter’s are, and the current developments, we’re not trading these like many other operations.
Nothing wrong with trading, not right or wrong, it’s just different and we tend to buy and hold things. That also creates some tax efficiency and the unrealized gain tends to build over time.
So that would really be a strong argument against selling because if we have something that’s appreciated dramatically when we sell that for a dollar we don’t have a full dollar to reinvest. We have 75 cents, or 70 cents, or something like that.
So the amount that your replacement has to go up to replace the real value that you’re receiving upon selling, after you pay the taxes, it’s pretty dramatic, which creates a bias, some might call it an endowment effect. Some might call it a flaw, but it has worked out.
There’s also some pretty nice math to it and that things that have gone well, and that managements do a good job of, and are good business, oftentimes those are pretty persistent.
I think there’s a statistic that if you want to make a guess as to which show on Broadway will play the longest, the best answer to that is the one that has already been playing the longest.
Because what that means is you have crowd tested data that says this is a good show and you know shows can have runs that last years.
So you might think that show’s been there three or four years now come on, it might be there 15 years after that. Whereas the new thing that just opened, and maybe some people are buzzy about it… talking about it. It might be gone in 30 or 90 days.
So there’s a lot to be said for the persistency of some of the leading companies that we have, and the amount of sort of day-to-day work that’s associated with owning Berkshire and Home Depot I got to tell you it’s not that much!
You can listen to the entire discussion here:
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