Warren Buffett is perhaps the most successful buy-and-hold investor, but that doesn't necessarily mean he always buys stocks and holds onto them forever. To illustrate this, let's look at Berkshire Hathaway's (BRK.A 0.99%) (BRK.B 0.91%) largest stock holdings 25 years ago and compare them with Berkshire's largest positions today. It may surprise you that only one-third of those 1992 stock positions are still a part of Berkshire in 2017.
What stocks did Warren Buffett own in 1992?
In his 1992 letter to Berkshire's shareholders, Warren Buffett provided a list of Berkshire's common stock holdings valued at more than $100 million. The nine major stock holdings in Berkshire's portfolio, listed in descending order, were:
|
Company |
Market Value of BRK's Holdings |
|---|---|
|
Coca-Cola |
$3,911,150,000 |
|
GEICO |
$2,226,250,000 |
|
Capital Cities/ABC, Inc. |
$1,523,500,000 |
|
The Gillette Company |
$1,365,000,000 |
|
Freddie Mac |
$783,515,000 |
|
Wells Fargo |
$485,624,000 |
|
General Dynamics |
$450,769,000 |
|
Washington Post |
$396,954,000 |
|
Guinness PLC |
$299,581,000 |
Data source: Berkshire Hathaway 1992 Chairman's Letter.
Image source: Getty Images.
Berkshire's 2017 stock portfolio
Since 1992, Berkshire's market value has soared by more than 2,300%, and its stock portfolio has grown with it. As a result, Berkshire's portfolio now contains 39 common stock positions worth more than $100 million. Let's look at the company's nine largest investments in 2017, and how they've changed over the past quarter-century.
|
Company |
Market Value of BRK's Holdings |
|---|---|
|
Kraft Heinz |
$29,235,493,960 |
|
Wells Fargo |
$27,213,623,237 |
|
Coca-Cola |
$16,500,000,000 |
|
IBM |
$14,395,176,415 |
|
American Express |
$11,852,924,526 |
|
Phillips 66 |
$6,394,673,941 |
|
U.S. Bancorp |
$4,554,281,961 |
|
Moody's Corporation |
$2,653,974,717 |
|
Goldman Sachs |
$2,647,271,814 |
Data source: CNBC Berkshire Hathaway Portfolio Tracker. Holdings are current as of Berkshire Hathaway's 3Q 2016 13-F filing.
What happened to Buffett's 1992 stocks?
If you notice, there is some overlap between the two lists. Specifically, Coca-Cola and Wells Fargo are still among Berkshire's top holdings today. Additionally, GEICO became a fully owned subsidiary of Berkshire in 1996 and is now a cornerstone of the company's business. However, that means that two-thirds of Berkshire's major stock investments in 1992 are no longer a part of the company. What happened?
Here's a rundown of what happened with the other six stocks on the list:
- Capital Cities/ABC, Inc. was purchased by the Walt Disney Company in 1996.
- The Gillette Company merged with Procter & Gamble in 2005, and while Berkshire still owns a small amount of its shares, it has sold most of this position.
- Berkshire's Freddie Mac investment swelled to almost $4 billion in value at one point (a 9% stake), but Berkshire decided to sell substantially all of its shares in 2000 as the company began taking on too much risk. It's a good thing he did -- today, 9% of Freddie Mac is worth about $230 million.
- General Dynamics is still a publicly traded company, but Berkshire sold its shares in 2013.
- The Washington Post's newspaper business was purchased by Amazon.com CEO Jeff Bezos in 2013. Buffett unloaded the last of his shares of the Post's parent company, Graham Holdings, in 2014.
- Guinness PLC merged with Grand Metropolitan in 1997 to form Diageo, however Buffett did not continue his investment in the company.
Lessons to learn
Buffett has famously said that "our favorite holding period is forever" regarding Berkshire's stock portfolio. In other words, Buffett and his stock pickers approach their investments with the intention of holding them forever, not just as short-term trades.
However, a look at Berkshire's portfolio shows that in practice, it doesn't always work out this way. There are plenty of valid reasons to sell a stock.
One great reason to sell is if your original reasons for investing no longer apply. This may be the case when a company gets bought out by another. Or, when the company's management starts operating differently. This was the case with Berkshire's Freddie Mac investment. Buffett noticed that management started taking on more and more risk in order to boost profits and satisfy investors, and he abruptly decided to exit the position, saying that he was "concerned about what they might be doing...that I didn't know about." It turns out that his instincts were 100% right.
On the other hand, if a company does a good job of delivering strong returns in a responsible manner, you can hold onto your shares forever, which is why Wells Fargo and Coca-Cola remain two of Berkshire's biggest holdings.
The bottom line is that after you buy a stock, even if you plan to hold it for decades, its situation can (and probably will) change, so it's important to keep yourself informed about what's going on with the company on a regular basis. Doing so is part of the Warren Buffett investing playbook.
