In his blog “Live Your Legend,” Charlie Dinsmore writes about 20 life lessons he learned from Warren Buffett. My favorite is Buffett’s approach to buying companies he will not have to turn around. Buffett is looking for companies he can keep just as they are.
Some investor’s look for companies that have pieces that are more valuable if broken apart and sold to separate buyers. Other investor’s look for companies the investors believe can be made better with a new management team. Dinsmore points out that Buffett buys companies for their quality just as they are.
I remember reading some years ago that it was Buffett’s partner, Charlie Munger, who first emphasized this lesson of investing in companies you plan to keep not companies that you plan to sell. I am not sure who originated the idea between Buffett and Munger, but the belief and the practice of buying and holding companies has enabled the two investors to hold stakes in very successful companies, pay a lot less taxes on the profits than buy and sell investors, and to build huge personal fortunes.