8600% gains with a buy and hold strategy

Maximising gains with a buy and hold strategy

Buffett is so confident in his stock-picking ability that he is incline to continue holding an investment perpetually. Rather than lull himself into believing he can win by continually darting in and out of the market.

Buffett believes he can earn and retain more money picking a few choice companies and letting them grow over time.

"All you do is buy shares in a great business for less than the business is intrinsically worth, with managers of the highest integrity and ability. Then you hold those shares forever," he told a Forbes reporter in 1990.

To make the point, Buffett's porfolio is concentrated in a small number of companies he has owned for years.

• - He began accumulating stock in The Washington Post in the mid-1970s until he owned 1,869,000 shares. In 1985, he sold about 10% of his holdings but has kept the remaining 1.727,765 to this day.

• - He continues to hold all 96,000,000 million shares of Gillette bought in 1989. He originally bought a preferred stock that converted into 12,000,000 shares; there have been three splits since.

• - He vows never to sell his 200,000,000 shares of Coca-Cola despite the recent slump in revenues and earnings.

• - Buffett began studying and buying shares of GEICO at the age of 21. He reportedly made a nearly 50 % gain on his first GEICO investment in a single year. Later, when Wall Street belived GEICO was on the verge of bankruptcy, Buffett began accumulating large stakes in the insurer. By 1983, he owned 6.8 million shares, which turned into more than 34 million shares - 51% of the company - by virtue of a 5 for 1 split. In August 1995, he announced he would buy the remaining 49% of GEICO and bring the company under Berkshire's umbrella.

Such patience has paid off.

• - His $45 million investment in GEICO in the 1970s became worth $2.4 billion (a 54-fold increase in 20 years) when Buffett announced he was buying the rest of the company.

• - He has held shares in The Washington Post for 27 years, over which time his $10.6 million investment grew to $930 million by the end of 1999, an 86-fold increase. During a period in which Wall Street's brokerages alternately told investors numerous times to buy and sell The Washington Post, Buffett held on for the maximum gain. Buffett has not paid a dime of capital gains taxes on The Washington Post since he sold a portion of his position in 1985.

Few investors can brag of attaining an 8,600 percent return on one investment because so few will hold a stock long enough to maximise the stock's potential.

Even thought the past few years has provided several stocks that surged 8,000 percent within a few years, such as Dell Computer, Qualcom, or America Online, it's doubtful that many investors reaped the full gain.

These stocks rallied so prodigiously because investors flipped them so rapidly. Turnover caused most of the gains. The majority fo investors tripped themselves up playing the market's short-term lottery.