To Upgrade the Quality of Your Portfolio

To upgrade the quality of your portfolio

For those who already hold a portfolio of stocks that may have been selected without reference to value, a culling approach to upgrade the quality of your portfolio by replacing overpriced stocks with those offering better value, would be suggested.

Although it is probable that you hold some stocks that should be sold immediately, in making that determination you must be sure of what you are doing and not act with undue haste.

Solicit advice and input from others you respect, but keep your own counsel and do not be influenced by those whose knowledge is unlikely to be superior to your own.

Let’s also consider some basic selling issues:
Tax
Let’s say you buy a stock for $5 and it rises to $15 when its value is $11. If you sell it for $15 and the $10 profit was subject to 40 percent tax, you would be left with $11. If you consider that $11 would be a good price at which to buy the stock, there is not much point in selling at the same net price.
Management
Great businesses with sound corporate management are quite rare. If you are invested in such a company, selling and attempting to find a replacement with similar management qualities is likely to be difficult. Buffett says he is wary of the risk in switching allegiance to people less well known to him.
Fear of not being able to buy back at a better price.