Managing Your Portfolio 173The Decision to Buy: An Easy Guideline
When Buffett considers adding an investment, he f irst looks at what he
already owns to see whether the new purchase is any better. “What
Buffett is saying is something very useful to practically any investor,”
Charlie Munger stresses. “For an ordinary individual, the best thing
you already have should be your measuring stick.”
What happens next is one of the most critical but widely over-
looked secrets to increasing the value of your portfolio. “If the new
thing you are considering purchasing is not better than what you al-
ready know is available,” says Charlie, “then it hasn’t met your thresh-
old. This screens out 99 percent of what you see.”^21
The Decision to Sell: Two Good Reasons to Move Slowly
Focus investing is necessarily a long-term approach to investing. If we
were to ask Buffett what he considers an ideal holding period, he would
answer “forever”—so long as the company continues to generate above-
average economics and management allocates the earnings of the com-
pany in a rational manner. “Inactivity strikes us as intelligent behavior,”
he explains.^22
If you own a lousy company, you require turnover because other-
wise you end up owning the economics of a subpar business for a long
time. But if you own a superior company, the last thing you want to do
is to sell it.
This slothlike approach to portfolio management may appear quirky
to those accustomed to actively buying and selling stocks on a regular
basis, but it has two important economic benef its, in addition to grow-
ing capital at an above-average rate:
Table 10.4 The Superinvestors of Buffettville
Number of
Number of Number of Consecutive Underperformance
Years of Years of Years of Years as a Percent
Performance Underperformance Underperformance of All YearsMunger 14 5 3 36
Ruane 29 11 4 37
Simpson 17 4 1 24