Buffett’s lesson: Even a great company needs to be bought at a good price
By the late 1990s, Coca-Cola had already made Buffett a lot of money. He liked the business, so he continued to hold the stock rather than sell.
But at the time, the share price already reflected the market’s expectations of rapid future growth.
Then Coca-Cola’s business ran into trouble: overseas markets were weak, and a product recall hit Europe. In 1999, the company’s net income fell about 31% year over year, failing to deliver the growth investors had expected.
The share price fell as well. Reports said the value of Buffett’s position dropped by half, from a peak of $17.5 billion to $8.75 billion.
Although Buffett had bought in early at a low price and still had plenty of gains, he gave back a substantial amount of his paper profits by not trimming his position.
Even a great company can become too expensive to be worth buying. When a stock price has clearly diverged from its fundamentals, selling part of the position to lock in gains can be a reasonable choice.
Being bullish on a company for the long term doesn’t mean you should never sell a single share at any price.
By the late 1990s, Coca-Cola had already made Buffett a lot of money. He liked the business, so he continued to hold the stock rather than sell.
But at the time, the share price already reflected the market’s expectations of rapid future growth.
Then Coca-Cola’s business ran into trouble: overseas markets were weak, and a product recall hit Europe. In 1999, the company’s net income fell about 31% year over year, failing to deliver the growth investors had expected.
The share price fell as well. Reports said the value of Buffett’s position dropped by half, from a peak of $17.5 billion to $8.75 billion.
Although Buffett had bought in early at a low price and still had plenty of gains, he gave back a substantial amount of his paper profits by not trimming his position.
Even a great company can become too expensive to be worth buying. When a stock price has clearly diverged from its fundamentals, selling part of the position to lock in gains can be a reasonable choice.
Being bullish on a company for the long term doesn’t mean you should never sell a single share at any price.
