Warren Buffett, the chairman of Berkshire Hathaway, has shared an important lesson from the company's decades-long investment journey: patience pays off and a single wonderful business can make up for many mediocre decisions that are bound to happen. In his annual letter to Berkshire shareholders on February 24, Buffett also paid tribute to his long-time friend and vice chairman of Berkshire, Charlie Munger, who passed away in November last year. In the letter, Buffett wrote that Charlie was the architect of the present Berkshire and he acted as the general contractor to carry out the day-by-day construction of Charlie's vision.
Also Read: Warren Buffett calls Charlie Munger architect of Berkshire in his tribute
Speaking about Berkshire’s investment philosophy, Buffett highlighted two major picks.
“Last year I mentioned two of Berkshire’s long-duration partial-ownership positions – Coca-Cola and American Express. These are not huge commitments like our Apple position. Each only accounts for 4-5% of Berkshire’s GAAP net worth. But they are meaningful assets and also illustrate our thought processes,” he wrote.
American Express began operations in 1850, and Coca-Cola was launched in an Atlanta drug store in 1886. (Berkshire is not big on newcomers, Buffett added.)
Both companies tried expanding into unrelated areas over the years and both found little success in these attempts.
“In the past – but not now – both were even mismanaged,” he pointed out.
But each was hugely successful in its base business, reshaped here and there as conditions called for. And, crucially, their products “traveled.”
Also Read: No possibility of repeating Berkshire’s ‘eye-popping’ performance, says Warren Buffett
Coke and AMEX became recognizable names worldwide as did their core products, and the consumption of liquids and the need for unquestioned financial trust are timeless essentials of our world.
“During 2023, we did not buy or sell a share of either AMEX or Coke – extending our own Rip Van Winkle slumber that has now lasted well over two decades. Both companies again rewarded our inaction last year by increasing their earnings and dividends. Indeed, our share of AMEX earnings in 2023 considerably exceeded the $1.3 billion cost of our long-ago purchase,” he said.
Both AMEX and Coke will almost certainly increase their dividends in 2024 – about 16% in the case of AMEX – and we will most certainly leave our holdings untouched throughout the year, he added.
“Though Berkshire did not purchase shares of either company in 2023, your indirect ownership of both Coke and AMEX increased a bit last year because of share repurchases we made at Berkshire. Such repurchases increase your participation in every asset Berkshire owns,” he told Berkshire shareholders.
To this obvious but often overlooked truth, Buffett added his usual caveat: All stock repurchases should be price-dependent. What is sensible at a discount to business value becomes stupid if done at a premium.
“The lesson from Coke and AMEX? When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable,” the ‘Oracle of Omaha’ said.
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