Warren Buffett's legendary and storied investment career has yielded investors in his company, Berkshire Hathaway, breathtaking returns. Since Mr. Buffett took the helm of Berkshire in 1965, the stock has produced a 20.1% annual compounded return for its shareholders through the end of 2021. Meanwhile, the S&P 500 generated annual compounded returns of 10.5%, including dividends, over the same time frame.
Warren Buffett's 56-year track record is enough to draw the attention of the investing universe. If a long-term buy-and-hold investor (like Buffett, Berkshire's largest shareholder) plunked down $10,000 for Berkshire shares when Buffett took over and had the patience never to sell a single share, they would have had over $284 billion at the end of 2021. With stats like that, it's understandable why investors might be wise to consider Buffett's every buy and sell.
If you had been watching Buffett 10 years ago, you might have stumbled across one of Buffett's lesser-known holdings that has crushed the market since he bought it. The stock has a few of Buffett's favorite hallmarks.
Image source: The Motley Fool.
Buffett's favorite holding period is "forever"
Buffett is quoted as saying his favorite holding period is "forever." No one can hold a stock forever. What he really means is that the best companies have the staying power to increase their value for the foreseeable future.
For example, Buffett first bought shares of GEICO in 1951 when he was 20 years old. Berkshire eventually acquired the entire company and still holds it inside the company's insurance portfolio after 72 years.
He also bought shares of Coca-Cola in 1988, months after Black Monday. Berkshire also still owns its Coke shares -- it's been 34 years and counting. But neither of these two is the Buffett holding you need to know about now.
Verisign checks the boxes for Buffett
Buffett followers may not be familiar with Verisign (VRSN 0.63%), but they should be. The company provides the infrastructure to the internet by providing the domain registry for the .com and .net domains.
The company is responsible for ensuring these domains are up and running 24 hours a day. That's not easy to do, considering it handles billions of internet queries daily. Verisign has executed flawlessly, though. The company boasts an astounding 25 years of uninterrupted service.
Verisign has been granted exclusive rights to run its domains by the Internet Corporation for Assigning Names and Numbers (ICANN), a governing body of the internet. Verisign's agreement with ICANN gives it a monopoly on its domains, for which users must pay an annual fee.
The number of .com and .net domain names has proliferated over the years. In 2008, the company provided service for 90.4 million domain names. By the end of last quarter, that number had increased by 92% to 174.3 million. The growth of web pages has done wonders for the stock.
The average closing price of Verisign in the fourth quarter of 2012 (when Warren Buffett first bought shares of the company) was $41.62. A $10,000 investment would've bought you 240 Verisign shares at that price. At the time of this writing, Verisign stock is trading at about $176 per share, and your original $10,000 would have vaulted by 322% to $42,240. That's significantly better than the 158% total return of the S&P 500.
What makes Verisign's track record more impressive is that the stock has shed about 30% of its value since the beginning of the year. Despite the stock's tumble this year, Verisign has rewarded its steadfast shareholders handsomely.
Is it too late to buy Verisign?
Buffett still owns Verisign shares inside Berkshire Hathaway, indicating that "forever" may still be his preferred holding period for the stock. And the company also still controls the exclusive rights to provide its domain registries. That means Buffett's original investment thesis is still intact after all these years. In addition, companies like GoDaddy and Wix.com make it easier than ever for people and companies to create and register domains.
Buffett is a huge believer in buying stocks of great companies, but only if the price is right, compared to its earnings. So what was the price-to-earnings ratio (P/E) when Buffett bought Verisign? We can't know the exact dates when Buffett bought his original stake in the fourth quarter of 2012, but we can make an educated estimate.
At the beginning of the fourth quarter of 2012, Verisign's P/E ratio was about 29.51. By the end of the quarter, it had retreated to 19.81. Buffett thought that was an attractive valuation for a monopolistic stock he could hold forever.
Here's the monster opportunity for potential Verisign investors. The beaten-down Nasdaq stock now trades at a P/E ratio of 23.63 times, within the valuation range Buffett may have paid for the stock a decade ago. Investors who missed out on the stock 10 years ago now have another chance to get in on it at a similar valuation to Buffett's original stake.
Now is a great time to buy the stock hand over fist and hold it forever. You may regret not buying the dip on this Buffett stock.
