Further, Buffett would have also suffered from a scale disadvantage if he had continued investing in cheap but small companies.
BUYING CIGAR BUTTS
We quote “Buying cigar butts at less than liquidation value would almost certainly have continued to work out well for Buffett as long as the amounts involved were small enough.
Such opportunities tend to be in very small companies.
This approach requires more portfolio turnover as time works against lousy businesses.”
In other words, while the decision to sell a mediocre investment that has done well for you is immediate, it moves much further out in great quality business.
Failure to calibrate the right price to sell a mediocre business could negate your whole investment case.
BUYING WONDERFUL BUSINESS
In the mean time, a wonderful business continues to renew corporate value by garnering more and more of the profit pool in its industry.
You have to be vaguely right about when to sell it.
Last, and as importantly, the tax implications of high portfolio turnover are highly unfavorable.
BUFFETT HAS PRAISED KEYNES AND FISHER IN HIS VARIOUS LETTERS
The investment philosophy that has guided Berkshire Hathaway until today is more reminiscent of Keynes and Fisher than Graham.
In fact, Buffett has paid homage to Keynes in various letters to Berkshire shareholders.
Further, he is known to have once said his strategy was 15% Fisher and 85% Benjamin Graham.
We believe this to be genius of Buffett – finding out what works and evolving to it.