The Warren Buffett Portfolio: 1994 Edition

The cops aren't chasing OJ's white Bronco, I don't think Walkmans exist, and Nancy Kerrigan's knee is fine now. A lot has changed in past two decades, but at least one thing hasn't, every year, Warren Buffett writes a letter to the Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) shareholders, and every year, that letter is oozing with investing insight.

That's why, in the name of becoming better investors, today I will be digging into the 1994 holdings of Berkshire Hathaway to determine what Buffett might have liked about American Express (NYSE: AXP  ) , Wells Fargo (NYSE: WFC  ) , and Proctor and Gamble (NYSE: PG  ) , and how Berkshire Hathaway has adjusted its positions over the past decades.

"Nevertheless, I find that a long-term familiarity with a company and its products is often helpful in evaluating it."

Warren Buffett made his first investment in IDS, now Ameriprise Financial, in 1953. This gives Buffett 60 years' of experience with American Express; which shows the benefits of familiarity, whether there's one share at stake, or approximately 28 million with an estimated market value of $800 million -- like for Berkshire Hathaway in 1994.

In the next decade, American Express would streamline its business, and in the process, spin off both its financial services and investment banking branches into, again, Ameriprise Financial and Lehman Brothers Holdings, respectively.

Buffett consistently preaches the importance of finding companies with "enduring" competitive edge. Remember that word, "enduring," because what matters isn't whether American Express can compete this year, but if it'll consistently compete this decade, and according to Berkshire Hathaway's current holding of approximately 150 million shares with a market value near $11 billion, it seems like he does.

"At Wells Fargo, a $53 billion bank, our 13% ownership translates into a $7 billion "Berkshire Bank" that earned about $100 million during 1994."

Strong competitive advantage is utterly useless without a strong management team in place to protect that advantage. So for Buffett and Berkshire, Wells Fargo was a lay-up. From 1984 to 1994 -- under the control of then-CEO Carl Reichardt -- Wells Fargo's stock price increased by 740%.

And in Berkshire's 1994 letter to shareholders, Buffett had this to say about Carl Reichardt: "Carl prepared well for [his] departure and left [his company] in outstanding hands. We owe [him] our gratitude."

Paul Hazen, who worked closely with Reichardt, took over in 1995; he was succeeded by Richard Kovacevich in 2001, and then John Stumpf took the reins in 2007. While there have been several changes in management, as well as numerous crashes, dips, bulls, and bears, shares of Wells Fargo are up approximately 1,100% since 1995. Today, Wells Fargo is Berkshire Hathaway's top holding, with more than 460 million shares valued at approximately $19 billion.

"Berkshire has a 7% share of the world's razor and blade market... a proportion according us about $250 million of sales in 1994."

The Gillette Company (now Proctor and Gamble) holding is the epitome of a Buffett-style investment. Companies like Wells Fargo and American Express can be great investments, but they aren't exactly the easiest business models to understand. Gillette, however, was a simple business to comprehend, and one that produced consistent and predictable cash flows -- and what could be better than that? In 1994, Berkshire Hathaway held approximately 24 million shares of The Gillette Company worth approximately $1.8 billion.

When Proctor and Gamble acquired Gillette in 2005, this investor can't imagine a more seamless transition, Berkshire went from holding a 7% share in the razor market to a smaller share of dozens of similar companies. Buffett must have like what he was seeing, because by 2013, Berkshire Hathaway had increased its holding in Proctor and Gamble to approximately 53 million shares valued at approximately $4 billion.

"This year it will be all smoke."

The greatest quote in Buffett's 1994 letter to shareholder was, "Investors should remember that their scorecard is not computed using Olympic-diving methods: degree-of-difficulty doesn't count." Berkshire Hathaway had just 10 major stock holdings in 1994. All of which had competitive advantage, strong management, and cash flows that Buffett could easily understand.

A lot can be learned from Warren Buffett; however, perhaps the greatest advice he gave us in 1994 is this: Stick to what you know, love a few companies instead of liking dozens, and time is always the friend of a well-run business.

More Buffett brillance
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.


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