You want to make mistakes once in a while. If you never make a mistake, you're being too conservative and missing profit opportunities you shouldn't.
In general, we own a stock because we have a thesis that we don't believe is widely recognized. Once that thesis is widely recognized, there's no reason for us to own the stock. We hope the stock is selling at a certain level at that point, but sometimes it's higher than we expect and sometimes [...]
We have opinions on overall risk that impact what we own, but we never have an opinion on the market. I've always found enough companies that meet our standards, so we remain more or less fully invested. I think timing the market is extremely difficult to do profitably. With individual companies, I can pinpoint the [...]
Long periods of prosperity tend to breed overconfidence on the part of investors, which leads to a misassessment of risk. During times of excesses, we concentrate on reducing risk by holding uniquely strong companies.
The most important way we manage risk is to avoid situations where credit risks can overwhelm the story. We'll take the risk that our assumptions about the business turn out to be wrong in fact or in timing, but we want to minimize the risk that value is destroyed or the story doesn't even get [...]
Owning fewer than 15 stocks I'd have more risk of being wrong with one company than I'd like. At the same time, if I owned 30 to 40 stocks, experience tells me that roughly half would be my favorites and other half would either have less upside potential or more risk. Rather than force myself [...]
We look out two to three years at what a company can earn in a normal economy if our expectations for change play out. We don't look at a shorter period because so many other investors are doing that that it's much more competitive. Looking out much further than that, the uncertainties go up and [...]
I've been fooled many times by being too impressed by executives who are articulate and have done well in the past. I've learned to be humble about my own opinions and rely more on the opinions of people who aren't biased and have known the management personally or professionally for a long time.
You can't take a long-term view without confidence that the company's financial condition will allow it to meet out-of-left-field macro or micro challenges. There's an If you've looked at tens of thousands of balance sheets, as I have, you know what to look for in each situation. Generally, though, we look at debt-to-equity ratios, liquidity, [...]