It is Tuesday and time for a Warren Buffett quote: “Our favorite holding period is forever.” (The Motley Fool) What does this mean?
Buy Stocks Like You Never Intend To Trade Them
What would we do with stock of a company we never intend to trade? Nothing, basically. Just add to our holdings on occasion. Under what condition could we do this? If the company is stable, growing, produces good profit and expects to continue producing profit indefinitely, has a good track record, and values its shareholders. You might want the company to pay a dividend.
A Good Company Is One You Don’t Have To Trade
The condition in the last paragraph is the definition of a good company. We may also want it to be boring but a cash cow. If we pick the right 10 companies, we never have to trade them.
There Are Transaction Fees And Taxes Associated With Trading
Trading involves transaction fees that we would like to avoid. Lately, many brokerage firms are charging $0 for trades but that may not last forever. So I think we should act as if they still exist.
As far as taxes, trading within a retirement account avoids any taxes involved with trading. But if you trade within a regular brokerage account you will probably have taxes to pay.
The Longer A Good Company Is Held, The More Benefit It Provides
A good company is great for your portfolio. And the longer you hold your best companies, the more the benefits accumulate. I would seriously avoid trading any of my companies, but especially the top two performers.
The Longer A Company Is Held, The More You Know It
I know my 10 companies very well. The longer I’ve held them, the more I’ve learned, and the less I have to dig to find out information. You become comfortable with the management style, are able to recognize important changes as they happen, and have to look at less as you know what a red flag looks like.
I did trade my most underperforming stock this week but that is very unusual at this point. I know what I’m looking for and rarely do I find a replacement for one of my 10 companies.