I'm not too sure myself. I figure the idea is, if the company is good, and there hasn't been any bad news, why pull out?
Big time investors usually are on the board or some executive position, so they have direct contact with the company to know their operations.
If they don't find anything wrong with it, it should continue going up. But, if they find that the value might hang, they might reduce their position.
Also note that some holdings gain external "rewards" for their investment, like bargaining power, dividends, extra bonuses paid out, etc.
With millions of shares, even a cent or two equates to a lot of money, hence, even if it's slowing down at a peak, they still gain.
While they put some money into more speculatory stocks on the side, they have their secure investments as their main holding, in case those speculatory ones flop.
But yes, I'm not too sure. I personally don't think holdings should hold onto positions too long, if they're capping off. I think what it is, is, holding companies are often on the board, so, companies don't like it when they sell off (and they could vote to have them removed off the board).
It all depends on your time frame. Some have a time frame of a day, others months, or years. Investors like Warren Buffet have a time frame of forever. They rarely sell.
If the company has value, the stock's price will increase to reflect that. It may not be immediate, or even within a year, but it will happen.
Often stocks will hit a 52 week high, then continue going higher. Predicting which stock will reach a 52 week high this year is okay as far as it goes. Predicting which stock will continue to go up over many years is better.
To the long term (years) investor, buying an undervalued company and patiently waiting for the stock price to rise and reward them is their strategy. They don't sell when the reward comes. They keep holding knowing that continued patience will provide a bigger reward.
This is a strategy that gets lost in the noise of financial news shows. But it has been proven as a successful strategy for those who think in decades rather than quick profits.
This would take a year to cover at Harvard Business school.
In essence a "stock value" is greatly affected by how the investing public regards a company's immediate and long term future. When the public thinks the company has "great prospects" they can bid the value of that particular company way out of proportion to its "true value" or "book value". And vice versa.
Read some stories about the "reckless" speculation in the years leading up to the Stock Market Crash of 1929.
But specifically, B-H doesn't "trade" in the usual sense.
Buffett buys a quality company and holds on until something changes (and in some cases, nothing changes) . He holds for "long term profits". He has no interest in selling a good company just for the "current profit".
(next week, we will cover income tax implications)
I had asked a question couple of weeks ago, my question was why doesn't investment/holding companies like Berkshire Hathaway divest stocks when the stock price increases? So I got some answers like, those companies are more interested in company's value than the stock value of that company. I'm wondering why would they be interested in company's value and not in stocks value when their sole motto is to make profits. As you may know they have great experts who can predict which stock will touch its 52 week high this year. So why don't do they do divest stock and why are they interested in company's value?
