If there's one thing Warren Buffett is undeniably good at, it's making himself and investors a lot of money. In roughly 65 years, Buffett's net worth has climbed from $10,000 to north of $82 billion, all while shareholders of his conglomerate, Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) have seen more than $400 billion in created wealth over many decades.
The "secret" to Buffett's success really isn't a secret at all. The Oracle of Omaha, as he's affably known, has plainly professed his strategy for decades, which is to focus his research on a handful of industries and sectors, buy businesses that are well run and have clear-cut competitive advantages, and then allow time to work its magic. It's this long-term view that allows compounding to have the effect that, arguably, has played the biggest role in Buffett's and Berkshire's long-term success.
According to Form 13-F aggregator website WhaleWisdom, Berkshire Hathaway's top 10 holdings by market value have been held for an average of 7.5 years. Comparatively, the average holding time for retail investors today, not including computerized trading, is far less than a year.
But even this top-10 average for Berkshire understates the conviction Buffett has in some of his core holdings. The following three Buffett stocks have been part of Berkshire's portfolio on an uninterrupted basis for at least the past 25 years.
The longest-tenured holding in Buffett's portfolio is beverage giant Coca-Cola (NYSE:KO), which Berkshire began gobbling up in 1988. That means Buffett's investment in Coca-Cola is older than some millennials currently reading this sentence. Initially a 14.2 million-share investment, Berkshire Hathaway today owns 400 million shares of Coca-Cola, valued at $21.6 billion. That makes Coke Buffett's third largest holding.
Today, Coca-Cola possesses exceptional branding power and unparalleled geographic reach. With the exception of North Korea, Coca-Cola operates in every country worldwide and has a portfolio of nearly 3,900 beverages, 21 of which are raking in $1 billion or more in annual sales for the company. It's not exactly a high-growth company, but Coca-Cola's incredible marketing and brand-recognition allow it to thrive and generate predictable cash flow in virtually any economic environment.
In Berkshire Hathaway's 1988 shareholder letter, Buffett had this to say about his newest, and now one of his greatest, acquisitions:
In 1988 we made major purchases of Federal Home Loan Mortgage Pfd. ("Freddie Mac") and Coca-Cola. We expect to hold these securities for a long time. In fact, when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever. We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds.
Although "lethargy bordering on sloth" described Berkshire Hathaway's investment style in the company's 1990 shareholder letter, the one exception to that rule was a 5 million-share acquisition of money center bank Wells Fargo (NYSE:WFC) for $289.4 million. Since a sixth of the position was actually purchased in 1989, it makes Wells Fargo a holding of 30 years and counting. Today, the banking giant is Berkshire's fourth largest holding, with its 409.8 million shares held worth $21.3 billion.
Aside from a phantom bank account scandal that rocked Wells Fargo in 2016-2017, it's been a model of consistency for decades. Having long avoided the risky derivative investments that were the undoing of some of its peers in the late 2000s, Wells Fargo has instead focused on attracting more affluent clientele who are less likely to be impacted by swings in the U.S. economy. It's also worked to grow deposits and loans, which remain the bread and butter of banking success. Not surprisingly, Wells Fargo's return on assets tends to be at or near the top of the list among U.S. money center banks.
But why did Buffett buy into Wells Fargo back in 1989 and 1990? Essentially, it came down to a superb management team and a well-managed bank at a fair price. In Berkshire's 1990 shareholder letter, Buffett cited management's astuteness in not expanding headcount beyond its means, as well as the fact that it "attack[s] costs as vigorously when profits are at record levels as when they are under pressure."
Maybe the biggest eye-opener of the 1990 shareholder letter is that Buffett notes that "the banking business is no favorite of ours." Today, money center banks are a staple of Berkshire's portfolio, and this long-standing change of opinion probably started with Wells Fargo.
Buffett has also been a longtime fan of credit services company American Express (NYSE:AXP), which Berkshire began buying in 1993. Berkshire held nearly 27.8 million shares at the end of 1994 at a total cost of $723.9 million. That compares with the 151.6 million shares of AmEx owned today, worth $17.9 billion. That's good enough to be the fifth largest Buffett stock holding.
Similar to Wells Fargo, American Express' success has often been found by courting more affluent consumers. Folks with higher incomes are less likely to change their spending habits over minor hiccups in the U.S. or global economy, thereby allowing AmEx to continue to collect healthy merchant services revenue.
Furthermore, American Express is also a lender, thereby allowing it to double-dip when the global economy is expanding. In other words, it collects merchant service fees on transactions, and then also collects interest and fees on balances tied to its AmEx cards in circulation.
In Berkshire's 1994 shareholder letter, Buffett noted that "in the stock market, an investor frequently gets the chance to increase his economic interest in businesses he knows and likes." Back in 1964, Buffett's partnership took a 40% stake in AmEx, representing the largest such investment by the partnership at the time. He and his partners would sell for a tidy profit just two years later. This idea of "pulling current investment decisions out of past associations" was his reasoning behind buying stock in AmEx in 1993.