What do Warren Buffett and the coaching staff at University of Miami have in common? They hold onto underperformers.
"We are also very reluctant to sell sub-par businesses as long as we expect them to generate at least some cash and as long as we feel good about their managers and labor relations." - Warren Buffett
"If we recruited you, and you're going to class, lifting weights, are on time, giving your best and you're still not good enough to play, then it's our fault and we'll stick with you because you're part of our team." - Art Kehoe, University of Miami Hurricanes
Why would these titans in their fields both go against the most prevalent investing advice there is, sell losers?
The main goal for Buffett is to get great investment performance from his core holdings. This requires acquiring the best companies. LSU wants to be the best in college football, requiring them to recruit the best talent.
If investees and recruits are doing everything asked of them to perform and they can still not achieve acceptable levels, both Buffett and LSU know this is only their fault. They did the due diligence and were mistaken. Now they must simply accept the underperformers as part of the family, treat them as well as possible and hope the most attractive businesses and best athletes see this and make these institutions their destinations of choice.
Potential sellers of companies and athletes want to know they are going to be treated well, and therefore seek out suitors who treat their current holdings and players fairly.
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