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Strategies & Market Trends : Fundamental Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (2381)	10/3/2012 12:10:44 PM
From: Sergio H	1 Recommendation Respond to of 4719

In the book Warren Buffett and the Interpretation of Financial Statement, there is a very short chapter titled How Warren Buffett Determines When It's Time To Sell. The first reason cited, as you mentioned, is when you need money to buy an even better investment. The second is when the company appears to be losing its durable competitive advantage and the third reason is during a bull market when the stock has been priced at unreasonable valuations resulting from a buying frenzy. One value ratio that Buffett looks at is money spent on R & D. INTC has been forced into spending more to keep up with the consumer shift away from PCs. Buffett realized that the increased R & D expense meant that INTC's durable competitive edge was being challenged. His fund's profits were 25% on Intel, and although Buffett hates to pay the tax man, it was best to take the profit when INTC fit one of his selling criteria. Why not apply the same rules for our selling? If this is agreed on, let's add it to our rules. In order to sell a position it will need to fit into one of Buffett's three rules for selling. I like your suggestion that we limit the size of any one position to a percentage of the portfolio. Since we only have ten stocks, ten percent or less would not be reasonable. How about 20%? If we agree on this, then we also have to decide where the funds would be applied after the sale.