Warren Buffett doesn't follow his own advice – and it's made him richer

Buffett doesn't always practice what he preaches.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Warren Buffett has made many memorable statements throughout the years. One I've always especially liked is this line he wrote in his 1996 letter to Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) shareholders: "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes."

That's exactly the kind of thing you'd expect to hear from a legendary investor known for his buy-and-hold long-term mindset. This is the same person who once stated that his "favorite holding period is forever". You'd also probably think Buffett has always practised what he's preached.

Think again. Buffett doesn't follow his own advice on this front nearly as often as you might expect. And it's actually made him richer.

The 10-year test

My curiosity recently got the better of me. I went back to Berkshire's 13F-HR filing for the third quarter of 2012. The purpose was simple: I wanted to see just how many of the stocks Buffett owned (via his stake in Berkshire) 10 years ago were still in his portfolio as of the latest regulatory filing.

In Q3 2012, Berkshire owned 37 stocks. Only 15 of those stocks were in the conglomerate's portfolio 10 years later. Of course, this didn't mean that Buffett hadn't owned the other 22 stocks for 10 years. After all, he could have bought them well before 2012 and still held them for at least that long. That was exactly the case with seven of them. 

There were also some other unusual scenarios to account for. One of those stocks from 2012 (Precision Castparts) was fully acquired by Berkshire along the way. On the other hand, Buffett sold Viacom during the period only to buy it back with the purchase of Paramount Global shares earlier this year. (Viacom later became ViacomCBS and renamed itself Paramount Global in February 2022.)

We also should cut Buffett some slack in a few cases. Three of the companies in which Berkshire owned shares back in 2012 were later acquired and taken private -- USG, Wabco, and The Washington Post. He couldn't still own these stocks today even if he wanted to.

Still, though, Buffett didn't hold on to 11 of the stocks in Berkshire's portfolio in Q3 2012 for at least 10 years. That's nearly 30% of the total number of stocks he owned back then. This got me to question whether his decisions to sell those stocks were smart moves.

A lazy analysis

I took an admittedly lazy approach in analyzing Buffett's wisdom in selling so many stocks before he had held them for 10 years. But I think my quick-and-dirty method is nonetheless instructive.

No, I didn't try to do the practically impossible task of guessing what Buffett did with the money made from those sales. I simply compared the performances of all the stocks in Berkshire's Q3 2012 portfolio that Buffett hadn't held for at least 10 years against how Berkshire itself performed between the end of Q3 2012 and the end of Q3 2022.

So what did I find? Only two of the 11 stocks that Buffett sold without holding for 10 years had delivered a total return greater than Berkshire's by the end of the third quarter of 2022 -- Deere and Verisk Analytics.

The bottom line here is that Buffett appears to have come out better overall by selling this group of stocks instead of holding them for 10 years. He's richer because he didn't dogmatically buy and hold.

RIP, buy and hold?

Don't say "rest in peace" to the buy-and-hold philosophy just yet, though. For one thing, Buffett did use some wiggle words in his previous statements. He didn't insist that investors should always hold stocks for at least 10 years. He merely said that you should be willing to own the stocks for that long.

The reality is that you can have a long-term mindset even when you don't hold some stocks for an especially long period. I don't think Buffett bought any of those stocks back then without being willing to own them for at least a decade. However, business dynamics can change. And it's possible for even the Oracle of Omaha to make mistakes.

Perhaps Buffett won't keep the stocks that he's recently added to Berkshire's portfolio for 10 years. If he doesn't, though, I think his advice to Berkshire shareholders in 1996 is still relevant. Be willing to buy and hold for the long term. Let your winners run. But if your premise for buying a stock changes, sell it. Buy and hold doesn't have to mean buy and hope.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Keith Speights has positions in Berkshire Hathaway (B shares). The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway (B shares). The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Deere & Company and has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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