Many investors look to the wisdom of successful investor Warren Buffett, chairman and CEO of Berkshire Hathaway, for sage investing advice. When asked about when to sell a stock, the Oracle of Omaha offers this advice: "When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever." For many investors, that's easier said than done. In this video clip from a Jan. 14 episode of Motley Fool Live, Fool.com contributors Brian Withers and Jason Hall discuss techniques for deciding what to sell, including the reasoning behind Withers' sale of the e-commerce giant Amazon (AMZN 0.25%).
Authors note: Amazon is shown in my disclosure below because of my joint ownership of my kids' accounts where they own shares.
Brian Withers: I'm going to do two [questions] in one. I'm going to do David's question and Jason Jackson. David asks, when selling stocks, what techniques do you use to see which stocks are ready for pruning? Jason Jackson asked the reason behind selling Amazon from top positions to not holding at all. Jason gets gets the star for paying attention in class. Yeah. Absolutely. I recently sold the last bit of my Amazon in January. As companies get to be much, much larger, I worry about, one, the complexity of their business. I've worked at IBM, down to small companies with 800 people and larger companies, and I don't know that Amazon is this way, it's one of the most well-run companies world, but just the multiplication of people that have to be involved to do the daily business and then grow that business, over time, I feel like my money is better spent elsewhere. Owning a $1.6 trillion market cap company or owning something like a cloud player that's $50 billion or Asana that's $5 billion. I will err toward the smaller sized companies that have large markets. That's similar to the selling stocks. I have the techniques. I'm down to where I want to add some money that Cloudflare. I don't know how I'm going to do it because I'm just stuck [with high-quality companies I don't want to sell].
Jason Hall: For me, I can address the trimming your weeds kind of thing, because I mentioned earlier, I sold Under Armour (UA 3.67%)(UAA 3.88%). When did I sell on Under Armour? On the 5th, so last last week. Surprisingly enough, I sold Chipotle Mexican Grill (CMG 1.70%). I sold completely. Those are two stocks I elected to trim. The reason I sold Under Armour, I'm really, really slow on the trigger to sell out of a company and it took me several years to finally reach the decision that I just don't think Under Armour has the chops to be a market beater anymore. A big part was it was still a moderately relevant size position in my portfolio. It was enough capital to free up that I could allocate it toward what I felt were better ideas. For Chipotle, I've just become less and less interested in following the business. I think it's still a wonderful business. I think it's extremely overvalued, even though they are likely to continue to grow. They have the best unit economics in the restaurant business. They're absolutely at incredible cash-generation. I'm just not interested in owning the business anymore at this point. For me, a lot of it, sometimes, it's just interest. Lots of compelling belief in the business and that's it, at this point in my career.