Berkshire Hathaway (BRK.A -0.46%) (BRK.B -0.48%) CEO Warren Buffett knows a thing or two about investing. Since becoming CEO in 1965, he's led his company's Class A shares (BRK.A) to an annualized return of 20.1%. For those curious, this works out to an aggregate return of 3,641,613%, through the end of 2021. That's a 120 times greater total return than the benchmark S&P 500, including dividends paid, over 57 years.
Buffett's long-term outperformance is a function of packing Berkshire's portfolio with cyclical businesses and dividend stocks, and most importantly, having a long-term mindset.
But even billionaire Warren Buffett is fallible.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Warren Buffett's biggest investing blunder was a doozy
Just one year after taking over at Berkshire Hathaway, Buffett and a consortium of investors put $4 million to work in theme-park operator and media stock Walt Disney (DIS -1.85%). The $4 million investment gave Buffett and his team a 5% stake in the up-and-coming entertainment and content provider, which at the time was constructing its Pirates of the Caribbean ride at Disneyland in Southern California.
What's so interesting about this investment is that the normally long-term-minded Buffett ultimately flipped his and his investors' stake in Walt Disney just one year later (in 1967) for around $6 million. On one hand, an approximately 50% return in a year is pretty phenomenal when the stock market has averaged a high-single-digit return over the long run. On the other hand, hindsight says the Oracle of Omaha made a poor decision.
Based on Walt Disney's market cap of a little over $193 billion, as of this past weekend, a 5% stake would have been worth $9.66 billion.
But here's the real kicker: Warren Buffett passed up billions in potential gains on Walt Disney a second time!
In 1995, Walt Disney announced that it would be acquiring Capital Cities/ABC in a cash-and-stock deal valued at $19 billion. Berkshire Hathaway was a Capital Cities/ABC shareholder at the time, meaning it was set to receive cash and 24,614,214 Disney shares upon closing of the deal.
Although Berkshire did hang on to its Disney shares for longer than a year this go around, the shares were ultimately disposed of between 1999 and 2000. Taking into account that Disney conducted a 3-for-1 forward stock split in 1998, the 73,842,642 shares Buffett's company could have held would be worth $7.82 billion, as of last weekend.
Guess what? Still not done.
Even though Walt Disney isn't paying a dividend now, the company has, at times, delivered a continuous payout to its shareholders over multiple decades. Giving up both a 5% stake in 1966 and 73,842,642 million shares in the late 1990s has cost Buffett well over $1 billion in dividend income.
All told, selling Walt Disney early has caused Warren Buffett to miss out on in the neighborhood of $19 billion, including dividends, which represents his single biggest investing mistake.
Image source: Walt Disney.
The Oracle of Omaha's biggest blunder can be your game-changing opportunity
Although Warren Buffett's short-sightedness cost him a big payday with Walt Disney, you don't have to make the same mistake. Thanks to unique circumstances, Walt Disney stock is inexpensive and represents a game-changing investment opportunity for long-term investors.
Walt Disney was absolutely clobbered by the COVID-19 pandemic. While lockdowns and preventative measures seemed to hurt most sectors and industries, Disney had its two core revenue drivers virtually shut down. Many of its theme parks faced temporary closures, while movie theaters were either closed or had attendance significantly curtailed, thereby hurting film revenue.
But here's the thing: Pandemics tend to be rare events. Even though there's still uncertainty as to how certain countries will treat COVID-19 over the long run, such as China with its zero-COVID strategy, the pandemic is no longer the crippling operating hurdle it once was for Disney. This fact, coupled with poor investor sentiment in the short run, has created a perfect buying opportunity for shares of Walt Disney.
One no-brainer reason to add Disney to your portfolio is the unmatchable nostalgia it brings to the table. Few companies can so easily connect with multiple generations of consumers. Whether it's the company's vast content of movies and shows, or its theme parks, the Walt Disney brand is associated with fun and imagination. Its brand isn't duplicable by another company, which gives it a sustained competitive advantage.
To further demonstrate how strong the Disney brand is, just take a closer look at Disneyland ticket prices (in Southern California) over multiple decades. Back in 1955, a Disneyland ticket set parkgoers back (drum roll) $1. That's it. One solitary George Washington. Today, the cheapest admission ticket you'll find is $104. That's a more than 10,000% increase in price when the inflation rate, as reported by the U.S. Bureau of Labor Statistics, has increased by a tad over 1,000% since 1955. That's the pricing power Disney possesses thanks to its theme parks and proprietary content.
Keep in mind that buying Disney here doesn't mean you're purchasing a dinosaur. Less than three years ago, the company launched Disney+ as a streaming service. This wasn't in response to the pandemic (the first COVID-19 case wasn't registered in the U.S. until January 2020). Rather, it was the company's management team recognizing ongoing cord-cutting and seeing an opportunity to lure in generations of consumers who are loyal to the Disney brand.
Since rolling out Disney+ in November 2019, the company has racked up 152.1 million subscribers. Streaming leader Netflix didn't even hit this number of subs a full decade after making the switch to streaming from its DVD delivery model. Including ESPN+ and Hulu, Walt Disney actually has more total streaming subscribers than Netflix. While Disney+ is a bottom-line drag for the moment as the company spends aggressively to expand into international markets, it's poised to become a clear cash-flow driver by mid-decade.
It's rare to find a company with multiple revenue channels that offers sustained competitive advantages; but that's exactly what you'll get with Walt Disney. With the company sitting just shy of 20 times Wall Street's forward-year earnings forecast, I'm not sure you're going to get another chance to buy shares so cheaply.
