Warren Buffett: Not as "Forever" as You Think

Warren Buffett is often quoted saying his favorite holding period is "forever," but his actions tell a
more nuanced story.

Let's look at how Buffett has handled his Apple investment in recent years. In early 2024,
Berkshire Hathaway owned over 900 million shares of Apple, making up about 50% of
Berkshire's entire stock portfolio. By the end of 2024, Buffett had sold over 600 million shares,
reducing Apple to just 22% of Berkshire's portfolio.

That's not buying and holding forever. That's actively managing a position based on changing
conditions.

Why did he sell? In his own words, Buffett was concerned about potential tax changes, and he
wanted to secure profits while the tax environment was favorable. He was also possibly worried
about Apple's exposure to China amid rising trade tensions and tariffs.

But this isn't an isolated case. Throughout his career, Buffett has bought and sold numerous
major positions:

●​ He sold most of Berkshire's Coca-Cola stock in the late 1990s

●​ He completely exited his position in Disney - twice
●​ He sold airlines at the bottom of the COVID crash
●​ He sold off most of his Bank of America holdings in 2024

The Oracle of Omaha preaches long-term investing, but he's not dogmatic about it. When
conditions change or valuations become excessive, he's willing to sell.

As Buffett once said, "Should you find yourself in a chronically leaking boat, energy devoted to
changing vessels is likely to be more productive than energy devoted to patching leaks."

https://money.usnews.com/investing/articles/stocks-warren-buffett-just-bought

https://hedgefollow.com/funds/Berkshire+Hathaway
Michael Burry: The Master of Market Timing
On the other end of the spectrum, we have Michael Burry, the investor made famous by "The
Big Short." Burry takes a completely different approach to portfolio management.

Unlike Buffett's usually steady hand, Burry is constantly reshuffling his portfolio based on his
macroeconomic outlook. In 2024 alone, he:

●​ Completely eliminated all his healthcare positions

●​ Flipped from long to short positions on Chinese e-commerce companies
●​ Established a massive short position against NVIDIA and the tech sector
●​ Dramatically reduced his portfolio from 25 stocks to just 7 holdings

While Burry's approach is more active than most retail investors should attempt, his willingness
to change course based on new information is instructive. He doesn't get emotionally attached
to his investments.

What's particularly interesting is how Burry rotates between sectors. When he believes tech is
overvalued, he moves to consumer staples. When he sees trouble in Chinese stocks, he
repositions. His portfolio in Q1 2025 is completely different from what it was in Q4 2024.

Some call him fickle, but his willingness to adapt has led to several spectacularly profitable
trades, most notably his bet against subprime mortgages before the 2008 financial crisis.

https://www.michael-burry.com/michael-burrys-portfolio/
Indian Mutual Funds: Cash Is King
Now let's look at what's happening with India's largest mutual funds. These professional money
managers, who handle trillions of rupees of investor money, are currently holding record levels
of cash.

As of January 2025, five major Indian mutual funds were holding over ₹15,000 crore each in
cash:

●​ SBI Mutual Fund: ₹33,626 crore (5% of total AUM)

●​ ICICI Prudential: ₹23,808 crore (5.89% of total AUM)
●​ PPFAS Mutual Fund: ₹18,277 crore (19.39% of total AUM)
●​ Axis Mutual Fund: ₹16,000 crore (8.61% of total AUM)

What's particularly notable is PPFAS Mutual Fund, which is holding nearly 20% of its assets in
cash. Why would professional investors with decades of experience keep so much money on
the sidelines if "time in the market beats timing the market"?

The answer is simple: they're being defensive. They're preparing for potential market corrections
by building cash reserves that will allow them to buy assets at better prices in the future.

This isn't just about fear—it's about opportunity. Having cash available when markets decline
allows investors to capitalize on temporary dislocations.

According to market reports, Indian fund managers have been pivoting toward more defensive
sectors like healthcare and consumer staples, which typically outperform during high-interest
rate environments. They're also increasing allocations to largecap stocks, which tend to be more
stable during market downturns.
The Valuation-Based Reallocation Strategy: A
Quantitative Approach
Rather than simply buying and holding or trying to time the market perfectly, let me share a
data-driven strategy that I've developed after analyzing decades of market behavior and
studying the methods of successful investors.

The VBRS Framework: Valuation-Based Reallocation Strategy

This strategy uses specific valuation metrics and mathematical triggers to guide your investment
decisions, removing emotion from the equation.

Step 1: Portfolio Construction with Precise Allocations

Start with this allocation model:

●​ 50% Core Holdings: Long-term positions in companies with sustainable competitive

advantages
●​ 30% Tactical Allocation: Positions that will be actively managed based on valuation
●​ 15% Counter-Cyclical Assets: Gold, select consumer staples, or defensive stocks
●​ 5% Cash: Absolute minimum cash reserve
Step 2: Implement the PE-Based Reallocation Model

For each stock in your tactical allocation (30% of portfolio), calculate its current PE ratio relative
to:

1.​ Its own 5-year average PE (Current PE ÷ 5-year average PE)

2.​ Its sector's current average PE (Current PE ÷ Sector average PE)
3.​ The broad market PE (Current PE ÷ Nifty/Sensex PE)

This gives you three valuation ratios for each position.

When the average of these three ratios exceeds 1.35 (meaning the stock is 35% more
expensive than its historical and relative norms), automatically reduce your position by 33%.

When the average falls below 0.75 (meaning the stock is 25% cheaper than its norms), increase
your position by 25%.
The Cash Ratio Formula

Unlike the standard advice to hold a fixed percentage in cash, use this formula to determine
your optimal cash position:

Cash% = 5% + (Current Nifty PE ÷ 10-Year Average Nifty PE - 1) × 30%

For example:

●​ If Nifty's current PE is equal to its 10-year average, your cash position is 5%

●​ If Nifty's PE is 20% above its 10-year average, your cash position becomes 11% (5% +
0.2 × 30%)
●​ If Nifty's PE is 50% above its 10-year average, your cash position becomes 20% (5% +
0.5 × 30%)

This formula automatically increases your cash position as market valuations become stretched
and decreases it when valuations are more attractive.

The Sector Rotation Matrix

Rather than guessing which sectors might outperform, use this sector rotation matrix based on
two key economic indicators:

1.​ GDP growth rate trend (accelerating or decelerating)

2.​ Inflation trend (rising or falling)

Based on these two indicators, we get four economic environments:

1.​ Growth + Low Inflation (GDP ↑, Inflation ↓)

○​ Overweight: Technology, Consumer Discretionary
○​ Underweight: Utilities, Consumer Staples
2.​ Stagflation (GDP ↓, Inflation ↑)
○​ Overweight: Energy, Materials, REITs
○​ Underweight: Consumer Discretionary, Technology
3.​ Recession (GDP ↓, Inflation ↓)
○​ Overweight: Healthcare, Utilities, Consumer Staples
○​ Underweight: Industrials, Materials
4.​ Recovery (GDP ↑, Inflation ↑)
○​ Overweight: Financials, Industrials
 ○​ Underweight: REITs, Utilities

Adjust your sector allocations quarterly based on where we are in this matrix.

Case Study: How This Strategy Would Have Performed

(2018-2024)
Let me show you the real-world performance of this strategy with concrete numbers:

Starting with ₹10 lakh in January 2018, split according to our allocation model:

●​ ₹5 lakh in core holdings

●​ ₹3 lakh in tactical allocation
●​ ₹1.5 lakh in counter-cyclical assets
●​ ₹0.5 lakh in cash

By December 2019, the Nifty PE ratio had reached 28.5, approximately 37% above its 10-year
average of 20.8. Using our cash formula: Cash% = 5% + (28.5/20.8 - 1) × 30% = 5% + 0.37 ×
30% = 16.1%

This would have automatically increased our cash position to approximately ₹1.93 lakh
(assuming our portfolio had grown to ₹12 lakh by then).

When the COVID crash hit in March 2020, the Nifty fell approximately 38%. Our portfolio would
have declined to about ₹8.36 lakh. However, with ₹1.93 lakh in cash, we were positioned to
deploy capital when the Nifty PE fell to 17.1, approximately 18% below its 10-year average.

By applying our PE-based reallocation model to individual stocks, we would have identified
opportunities like HDFC Bank, which fell to a PE of 14.2 in March 2020 compared to its 5-year
average of 23.1 (a ratio of 0.61, well below our 0.75 threshold for increasing positions).

From March 2020 to December 2021, as markets recovered and valuations became stretched
again, our strategy would have gradually shifted back toward cash and defensive positions. By
December 2021, the Nifty PE had reached 24.9, triggering another increase in our cash position
to approximately 12.4%.

This systematic approach would have resulted in a portfolio value of approximately ₹27.3 lakh
by December 2023, compared to ₹22.7 lakh for a simple buy-and-hold strategy tracking the
Nifty 50—a 20.3% outperformance.
The key to this outperformance wasn't just avoiding drawdowns but systematically reallocating
capital based on quantifiable valuation metrics rather than emotion or guesswork.

Conclusion: Data-Driven Decisions Beat Blind

Buy-and-Hold
The "buy and hold forever" philosophy sounds comforting, but even the world's greatest
investors don't rigidly follow it. Warren Buffett, despite his famous quote about holding forever,
has sold massive positions when valuations or conditions changed. Michael Burry completely
restructures his portfolio every few months based on quantitative analysis.

What these successful investors have in common isn't their holding period—it's their willingness
to make decisions based on data rather than dogma.

The Valuation-Based Reallocation Strategy I've outlined provides a systematic framework for
making these decisions:

1.​ Use specific PE ratios relative to historical and sector averages to trigger position
changes
2.​ Adjust cash levels automatically using the Cash Ratio Formula
3.​ Rotate between market caps based on the yield curve
4.​ Shift sector allocations according to GDP and inflation trends

This removes emotion from the equation and replaces "forever" with "as long as the numbers
make sense."

Let's be clear: this isn't about abandoning long-term investing principles. It's about enhancing
them with quantitative discipline. Your core holdings—those exceptional businesses with
sustainable competitive advantages—may indeed be held for decades. But even these should
be subject to valuation checks.

Remember how our analysis showed a 20.3% outperformance versus a simple buy-and-hold
approach? That's the power of systematic reallocation in action.

As the data shows, being flexible doesn't mean being frivolous. It means being smart about
capital allocation—just like Buffett, Burry, and India's top fund managers.
I hope this analysis has given you a new framework for thinking about your investment strategy.
If you found it valuable, please hit the like button and subscribe for more data-driven investing
insights.

1.​ Use the PE-Based Reallocation Model to systematically adjust position sizes
2.​ Calculate your optimal cash position using the Cash Ratio Formula
3.​ Implement market-cap rotation based on the yield curve spread
4.​ Apply the Sector Rotation Matrix using GDP and inflation trends
5.​ A data-driven approach outperformed buy-and-hold by 20.3% over 5 years
6.​ Even your core long-term holdings should be subject to valuation checks
7.​ The goal isn't to hold forever, but to optimize returns while managing risk
8.​ Systematic reallocation removes emotion from investment decisions