Did you ever watch a school of dolphin or porpoise as they follow closely beside a boat? Of course, no single one can stay two feet in the air all the time; but, each rises from the water, arches gracefully above it for as far as he can propel himself, and then knifes back into the sea. Shortly after the first emerges, another does the same, and then another. And so on. The effect is that, at any one moment, a number of the graceful animals are above the surface, glistening in the sun, and there is a constant presence there.

We buy shares of quality companies to hold until we want or need the money. The “rule of five” tells us that, of every five companies we select, we can expect four to do as well or better than expected, but one is likely to disappoint us. And, occasionally, the herd will bid up the price of one or another of our companies to a point where we can no longer expect as healthy a return going forward as we did because we have already enjoyed much of the appreciation. In any of those cases, we will need to replace our companies with others that will better meet our requirements.

Our portfolios are something like those schools of porpoises. Few of the companies you acquire will last forever. When you replace one, the rule of five still will apply and, sooner or later, you’ll have to replace another and another. And so it goes. You can never expect to achieve a perfect portfolio that will last without change forever.

What counts is that you constantly maintain a portfolio of good companies and maintain that status. The individual companies may come and go, but what remains “on the surface” will be a sight to behold!

Ellis Food for Thought, Fundamental Investment Views, Investment Concepts, NAIC Veterans' Lounge porpoises, portfolio management, rule of five, save the best, when to sell