Often we hear fund managers advocating buy and hold strategy. The point these fund managers make is buy a quality stock and remain invested for eternity. However, investment gurus like Warren Buffett and Charlie Munger have a different opinion.
In the latest Berkshire Hathway annual newsletter sent to investors, its Chairman Warren E Buffett, writes that his company has no commitment to hold any of its marketable securities forever. He was talking on how value investors consider exiting their investments.
In fact, Buffett has clarified that long-term strategy doesn’t mean holding a security forever. “Sometimes the comments of shareholders or media imply that we will own certain stocks forever. It is true that we own some stocks that I have no intention of selling for as far as the eye can see (and we’re talking 20/20 vision). But we have made no commitment that Berkshire will hold any of its marketable securities forever.”
Another wisdom that Buffett has shared with investors is staying away from high cost funds like hedge funds and active mutual funds. “When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds,” he wrote.
“Even a 1% fee on a few trillion dollars adds up. Of course, not every investor who put money in hedge funds ten years ago lagged S&P returns. But I believe my calculation of the aggregate shortfall is conservative,” Buffett added.