Banking, finance, and taxes

Warren Buffett's Greatest Investments Of All Time

Many investors find no better teacher than Warren Buffett. His place as one of the world’s wealthiest men speaks for itself thanks to the almost unimaginable gains seen by Berkshire Hathaway Inc. (NYSE:BRK.A).  24/7 Wall St. took a look at  Buffett’s greatest investments going back decades.  Some highlight the exponential gains Buffett’s investments have yielded.

There is always a caveat due to accounting changes.  Buffett’s financial reporting is unlike most firms because the company’s unique composition. With Buffett’s famous investment horizon of ‘forever,’ it is no shock that many of these gains remain unrealized as of today.

This is our list of Buffett’s thirteen greatest investments, listed in no particular order.

1. Coca-Cola (NYSE: KO)

> First Shares Purchased: 1988

> Date Sold: Still Held

> Amount Made: $9.2 Billion (Unrealized)

> % Gain: 766% (Unrealized)

When Buffett began purchasing stock in Coca Cola in 1988, many Wall Street analysts were skeptical because it seemed only a matter of time before other beverage companies would take away its market share. In addition, Coca-Cola had reported earnings down 2% from the previous year, and had an unimpressive P/E ratio of between 14 to 19.  At the time, shares of KO were worth between $35 and $45. The stock has split three times since then, and is now priced in the $60 range.  By 1995, Buffett owned 100,000 shares of the company with a cost basis of roughly $1.2 billion. As of September 2010, Buffett’s unrealized gains on KO were $10.4 billion. This comes out to a 766% increase in value. This is one of Buffett’s greatest investing triumphs.

2. American Express (NYSE: AXP)

> First Shares Purchased: 1964

> Date Sold: Still Held

> Amount Made: $3.7 Billion (Unrealized)

> % Gain: 290% (Unrealized)

In 1964, the “salad oil scandal,” where a vegetable oil company obtained massive loans through falsified collateral rocked American Express, which had provided warehouses and vouched for the company’s inventory. This event ended up costing the company approximately $58 million and much of its reputation. In the period after the scandal broke, investors couldn’t sell AXP shares fast enough, and the stock lost 50% of its value in a short time, falling to $35 per share. Buffett, however, saw this moment of panic for just what it was – a drawback for an otherwise very stable company with long-term growth potential. Buffett observed people beginning to use credit cards in their daily transactions, and recognized AXP’s potential to become an American blue chip. The Berkshire Hathaway CEO purchased shares with a cost basis of $1.28 billion. As of December 31, 2009, the company’s 151.6 billion shares are worth more than $5 billion, an unrealized gain of $3.7 billion and an increase of 290%. Berkshire Hathaway currently owns 12.7% of American Express.

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3. Gillette/Proctor & Gamble

> First Shares Purchased: 1989

> Date Sold: Still Held

> Amount Made: $4.32 Billion

> % Gain: n/a

Procter & Gamble (NYSE: PG) does not seem to be a top gainer for Berkshire Hathaway with a $20 million unrealized gain on a $4.321 billion cost basis as of September 30, 2010.  You have to go back to the days of Gillette to see where Buffett got extraordinary gains after P&G first acquired the razor company.  The Gillette Company cost basis was listed as $600 million in 2001 with an equity value of $3.206 billion.  When P&G announced the acquisition, the deal reportedly gave Buffett a one-day paper profit of about $650 million and a total gain of $4.4 billion overall.  Warren Buffett called it “a dream merger” and then decided to increase his P&G holdings.  Buying a big razor blade maker stake turned out to be one of his best bets ever. Team Buffett makes accounting changes from time to time and after acquisitions, and that may contribute to why there was only a $20 million unrealized gain as of September 30, 2010 on what is listed as a cost basis of $4.321 billion.

4. Burlington Northern Santa Fe

> First Shares Purchased: 2009

> Date Sold: Still Held

> Amount Made: n/a

> % Gain: n/a

Burlington Northern Santa Fe was one of the greatest investments ever made by Berkshire Hathaway.  Oddly enough, it does not seem that way on the surface.  Buffett called this “an all-in bet on the future of America” but this was truly an all-in bet on Berkshire Hathaway.  You have to recall that many had accused the Berkshire Hathaway empire of becoming a mutual fund rather than a conglomerate.  This $34 billion cash and stock investment in the railroad company changed that perception forever. That is what made BNSF so valuable.  When Berkshire Hathaway spilt its “B” class of shares so they became nominally affordable to more shareholders, it suddenly gained a larger shareholder base due to the BNSF holders sticking with the stock. Berkshire was added to the S&P 500 Index and to the Russell indexes.  The new investors drawn to the stock because of these maneuvers drove gains on top of gains.  You could argue that the post-merger impact gave BNSF to Mr. Buffett for almost free.  As of December 31, 2009, Berkshire owned 22.5% of BNSF’s outstanding common stock. It said in its report at the time “our equity in net assets of BNSF was $2,884 million and the excess of our carrying value over our equity in net assets of BNSF was $3,702 million. Prior to February 12, 2010, we accounted for our investment in BNSF pursuant to the equity method.”

5. BYD

> First Shares Purchased: 2008

> Date Sold: Still Have

> Amount Made: $1.8 Billion (Unrealized)

> % Gain: 762% (Unrealized)

Throughout most of his career, Buffett has famously avoided tech stocks, citing his ignorance on the subject. It was this strategy which allowed him to avoid the dot-com bubble and bust at the turn of the century. Buffett broke his no-tech rule in October 2008, when he saw incredible potential in Chinese Electric Car Company BYD. With the recession in full swing, emerging technologies like lithium-ion batteries and the cars that operate on them seemed a dangerous bet.  Oil prices had fallen dramatically from all-time highs that summer and green technology was no longer on many people’s minds as an industry that would see growth any time soon. The 225 million shares he acquired cost $232 million. As of December 31st, 2009, Berkshire Hathaway owned 225 million shares of BYD stock worth about $2 billion, equaling a 9.9% stake in the company. This equates to an unrealized gain of $1.8 billion, or 762%.

6. Dow Chemical/Rohm and Haas (NYSE: DOW)

> First Shares Purchased: 2009

> Date Sold: n/a

> Amount Made: n/a

> % Gain: n/a

Buffett is sitting on a gain today from his investment in The Dow Chemical Company (NYSE: DOW) when he came in with $3 billion to assist Dow to acquire Rohm & Haas for $18.8 billion in 2009. He effectively became the single largest shareholder in the larger Dow Chemical Company after acquiring 3,000,000 shares of Series A Cumulative Convertible Perpetual Preferred Stock in Dow Chemical Company.  Under certain conditions, each preferred share is convertible into 24.201 shares of Dow common stock, but the preferred share comes with dividends at a rate of 8.5% per year.  Beginning in April 2014, if Dow’s common stock price exceeds $53.72 then Dow can elect to convert the Dow preferred shares into common stock at the applicable conversion rate.  Calculating a total return if things remain static  is no easy task today and would require having access to the purchase agreement contract, but the underlying Dow common stock has risen from $10 (and under $10) up to around $36.00.  In retrospect, buying the common stock would have made more profits, but if you take the 8.5% per year into consideration Buffett’s income out to 2014 will bring in more than $1.27 billion in interest income – without the effect of the higher value in the shares. The preferred shares might not participate in as much gains as the common shares, but Buffett made this investment when many investors wanted to be much higher in the capital structure due to the economic uncertainty of the time.

Also Read: Warner Music For Sale But Buyers Could Be Scarce

7. Washington Post (NYSE: WPO)

> First Shares Purchased: 1973

> Date Sold: Still Held

> Amount Made: $720 million (Unrealized)

> % Gain: 6,500% (Unrealized)

In 1973, Buffett started purchasing shares of the parent company which owned the Washington Post. By the end of the year, he had about 10% in non-controlling shares. In 1974, the famous investor joined the board of directors. He became close friends with Katherine Graham, then the Post’s controlling shareholder, and who had overseen the paper during its best years, including the Watergate scandal. By the fourth quarter of 2004, Buffett owned 1.7 million shares at a cost basis of $11 million, and had increased his stake of the company to 18.1%. At that time, the market value of those shares was $1.698 billion. That represents an unrealized gain of $1.7 billion and an increase of 15,336.4%. However, since 2004 the newspaper industry has suffered, and shares of WPO have declined more than 50%, and Berkshire’s stake is now only worth about $730 million. That still represents a gain of about $720 million and a 6,500% increase. Warren Buffett has just announced he will step down from the board of directors at the Post.  Multiple reports indicate that Buffett plans to hold those shares and focus more on Berkshire Hathaway.

8. PetroChina (NYSE: PTR)

> First Shares Purchased: 2002

> Date Sold: 2008

> Amount Made: $3.6 Billion (Realized)

> % Gain: 880% (Realized)

In 2002 and 2003 Berkshire bought 1.3% of PetroChina for $408 million, during a time which the company was worth roughly $37 billion. In October 2008, the price of oil was rising rapidly, and Berkshire Hathaway’s report claims that he and Vice-Chairman Charlie Munger believed the company had reached its prime, and sold their shares on a realized cost basis of roughly $4 billion. This equates to a gain of $3.6 billion, and an increase of 880%. However, Shares of PetroChina continued to rise with the price of crude and Buffett admitted that he may have sold prematurely. Some believe the investor chose to bail on the stock because the Chinese company had received a great deal of bad press because of its connection with Sudanese oil operations, the profits of which were going at the time to a genocidal Sudanese military. Buffett claims his only reason for the sale was price, and not political pressure. Ironically, Team Buffett decided to invest heavily in ConocoPhillips and it took large hits after the energy bubble popped.  The Conoco shares were effectively cut in half from peak to trough before the recovery.  Berkshire Hathaway still held 29.1 million shares at our most recent reporting date.

9. Moody’s: (NYSE: MCO)

> First Shares Purchased: n/a

> Date Sold: several transactions

> Amount Made: n/a

> % Gain: n/a

Buffett purchased 488 million shares of Moody’s at a cost basis of $499 million. Buffett’s initial holdings in Moody’s were only 15% of outstanding shares. According to Berkshire Hathaway’s 2008 report, shareholder buybacks from the ratings agency had increased the portion of the shares to 20% of the company’s total. At the end of 2006, the market value of Buffett’s shares was $3.3 billion. His most recent holdings showed a reduction in holdings, 28.87+ million shares, down from 30.783 million. Despite the losses, it is plain the Moody’s deal has still been lucrative for Buffett. Even if the value of his original position had been halved since 2007, which is unlikely, Buffett’s realized and unrealized gains would be $351 million and roughly a 70% increase.

10. Freddie Mac

> First Shares Purchased: undetermined

> Date Sold: 2000 (the vast majority)

> Amount Made: $2.5 Billion (Realized)

> % Gain: 850% (Realized)

At the end of 1999 Buffett had 59,559,300 shares of Freddie Mac with a cost basis of $294 million and a market value of $2.8 billion. Buffett sold nearly all of his Freddie Mac and Fannie Mae shares in 2000. It may have been his insight into the company that gave the investor premonitions that Freddie Mac and its sister, Fannie Mae, were doomed. Buffett’s earnings on the sale were realized gains of roughly $2.5 Billion, with about an 850% increase from purchase price.


> First Shares Purchased: 1970’s

> Date Sold: Still Owned

> Amount Made: $2.35 billion (Unrealized)

> % Gain: roughly 5000% (Unrealized)

GEICO is one of Buffett’s first major investments and the position may have ties to his hero and mentor Benjamin Graham. Buffett began buying GEICO in the 1970’s and continued acquiring shares through 1981 with a carrying cost of $45.7 million for a 30% stake.  Because of buybacks, his stake grew to some 51%.  Team Buffett decided to acquire the rest of the company for $2.3 billion in 1995 and the deal closed in the first hours of 1996. That valued the company at closing at $4.7 billion for GEICO as a whole, placing Buffett’s implied cost basis around $2.35 billion. Buffett proudly noted in Berkshire’s 2009 report that GEICO’s market share has increased from 2.5% to 8.1% since the deal and he noted that “its float has grown from $2.7 billion to $9.6 billion.”  What GEICO would sell for today would likely be up for debate.  What would be extremely hard to debate is that Buffett added billions of dollars in value to GEICO under the Berkshire umbrella.

12. Capital Cities / ABC and Disney (NYSE: DIS)

> First Shares Purchased: 1979

> Date Sold: 1996

> Amount Made: $2.2 Billion (Realized and Unrealized)

> % Gain: n/a

Buffett purchased 20 million shares of Capital Cities/ABC at a cost basis of $345 million. At the end of 1995 the unrealized gains on those holdings were worth $2.5 billion. As reported in the Berkshire Hathaway Annual Report at the end of that year: “On January 4, 1996, shareholders of Capital Cities/ABC, Inc. … and The Walt Disney Company … approved an agreement and plan of merger by and between Disney and Capital Cities. In March 1996, Berkshire received about 21 million shares of Disney common stock and $1.2 billion in cash in exchange for the common shares of Capital Cities.” Berkshire reported a total realized and unrealized gain, between the shares and the cash, of $2.2 billion.

13. Lastly, Buffett’s House

> First Purchased: 1957

> Date Sold: Still Owned

> Amount Made: ?

> % Gain: ?

What about Buffett’s personal home?  Mr. Buffett’s house was purchased for  $31,500 back in 1957 and he has lived there ever since. A comparable home sold in his neighborhood in Omaha today would be worth about $400,000. He auctioned his signature 2001 Lincoln Towncar for charity for perhaps five times what a used car would cost if it were owned by any other person. So assuming Buffett imbues a 5x fame multiplier into his home, his six-bedroom stucco house could sell today for as much as $2 million. This is a profit of $1.96 million, and a gain of 6,249%.  Who knows how many improvements have been made that would adjust his cost basis higher.  Even after inflation adjustments, Buffett’s home would end up being one of his greatest percentage gains with his own money.

-Michael B. Sauter, Jon Ogg

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