Once we knew that the General Re merger would definitely take place, we asked the company to dispose of the equities that it held. (As mentioned earlier, we do not manage the Cologne Re portfolio, which includes many equities.) General Re subsequently eliminated its positions in about 250 common stocks, incurring $935 million of taxes in the process. This “clean sweep” approach reflects a basic principle that Charlie and I employ in business and investing: We don’t back into decisions. – Warren Buffett, Berkshire Hathaway 1998 Shareholder Letter
The new year is a time of reflection which generally focuses on how we can improve ourselves. A basic tenet of intelligent investing is to understand what you own and why you own it. This does not mean that you won’t make mistakes, but it does mean that, if something doesn’t work, you should be able to identify where your analysis went wrong – and learn from it going forward. Now is a great time to look at your portfolio and determine if you have holdings that don’t meet this simple test. Maybe you have some stocks that you bought without doing your homework or that are holdovers from a prior financial advisor. Whatever the case, if you don’t understand these businesses and why they are intelligent investments, maybe you should consider Buffett’s philosophy and take a “clean sweep” approach with those holdings.
Happy New Year to all the readers of my blog. I wish you all the best in 2011!