Value Investing

Warren Buffett’s Hero Philip Carret Says There’s Only One Rule For Selling Winning Stocks

One of our favorite investors here at The Acquirer’s Multiple is value investing legend Philip Carret who Warren Buffett once described as one of his heroes. Carret has written three books – The Art of Speculation, A Money Mind at Ninety, and Classic Carret: Common sense from an uncommon man. After founding his Pioneer Fund in 1928, one year before the great depression, Carret successfully steered his fund consistently upwards through the Great Depression and the Second World War and his career ultimately encompassed a total of 31 bull markets, 30 bear markets and 20 recessions.

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In a rare interview with Monitor Carret provided some of the greatest lessons he learned from a life of value investing including his one rule for selling winning stocks. Here’s an excerpt from that interview:

Your investment philosophy seems straightforward.

It is very simple; buy good companies and sit on them. There are good well-managed companies, which are a relative handful. There are companies that have moderately good management, which at least are not going bankrupt but probably are not going to give their stockholders glowing returns. There are companies which are over-leveraged — they owe a lot of money and are skating along on thin ice; when things get tough they are going to go bankrupt. So the job of an investment manager is to pick the good [companies] and sit on [their stock for many years].

One of the great faults of investment analysts is to try to put limits on what they recommend. They say, for example, ”here’s a stock selling at $12 [a share]. Sell at $18 a share.” That’s nonsense. If that’s all you expect out of it, leave it alone. If you buy it at $12 and you think it might double, one should feel comfortable in buying it. Probably the greatest performer in recent history is Berkshire Hathaway. [Berkshire Hathaway Inc., based in Omaha, Neb.] I bought the stock about 10 years ago at $400. Imagine how I’d feel if I sold it at $800. [It was recently selling at more than $24,000.] Why sell anything unless something goes wrong?

There are so many bewildering investment options today.

They are confusing. I have a simple mind. I don’t understand these derivatives. I know in a vague form of way what a derivative is but a lot of derivatives are totally mysterious to me.

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That sort of sums up your investing philosophy?

Yes.

Presumably an investor has some failures along the way?

That’s life. Nobody in baseball bats 1,000. If they bat .300 that’s considered remarkable.

You can read the full article at Monitor here.