'Our favorite holding period is forever'—is this meant literally, or does it emphasize a mindset? What are the real reasons Berkshire Hathaway sells its stocks?

"Our Favorite Holding Period Is Forever": Literal Meaning or Mindset Emphasis?

This statement originates from Warren Buffett's investment philosophy, specifically appearing in his letters to Berkshire Hathaway shareholders. It is not meant to be taken strictly literally but rather emphasizes a long-term investment mindset. Through this phrase, Buffett conveys the core principle of value investing: prioritize selecting high-quality businesses and treat "holding forever" as the ideal state. This approach avoids the friction costs (such as taxes and commissions) associated with frequent trading and maximizes the compounding effect. However, it is not an absolute rule but a guiding principle, encouraging investors to think like business owners rather than short-term speculators.

Why Not Purely Literal?

Mindset Emphasis: Deeply influenced by Benjamin Graham and Philip Fisher, Buffett emphasizes buying undervalued, excellent companies and holding them long-term to benefit from their intrinsic value growth. This phrase reflects the philosophy of "buying businesses, not stocks," encouraging patience and discipline rather than mechanically never selling.
Practical Flexibility: Berkshire does sell stocks, proving this isn't an ironclad rule. For instance, Buffett has explained in letters that he will act decisively to protect capital if the initial investment thesis fails.

The Real Reasons Berkshire Sells Stocks

Berkshire's stock sales are not arbitrary but based on rational evaluation, typically stemming from the following core reasons (repeatedly mentioned in Buffett's shareholder letters):

Deteriorating Company Fundamentals: If a business's competitive advantage (the "moat") weakens, management makes errors, or industry prospects decline, Buffett will sell to avoid permanent capital loss. For example, Berkshire sold some airline stocks when the pandemic caused a collapse in industry fundamentals.
Better Capital Allocation Opportunities: If more attractive investment opportunities arise, selling allows reallocating capital to higher-return prospects. This reflects the principle of opportunity cost—holding low-return assets is less desirable than shifting to higher-return ones.
Excessive Valuation or Market Irrationality: When a stock price significantly exceeds intrinsic value, selling locks in profits and avoids bubble bursts. Buffett emphasizes "being fearful when others are greedy," but this is not the primary reason; he focuses more on long-term value than short-term fluctuations.
Tax or Strategic Considerations: Occasional sales for tax optimization or corporate restructuring occur, but these are not dominant factors. Buffett repeatedly states in letters that selling decisions stem from "the investment rationale no longer holding," not market sentiment or short-term gains.

In summary, this "hold forever" mindset is a cornerstone of Berkshire's value investing philosophy, enabling long-term compounding returns. However, it remains grounded in rational analysis to ensure flexibility in responding to change. Investors should learn to focus on quality businesses while maintaining vigilance.