Warren Buffett’s Best and Worst Investments

Who is the “Oracle of Omaha,” what are his greatest investments and ones to forget, and what is the succession plan at Berkshire?

Warren Buffett is the CEO and chairman of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) and the fourth richest man in the world with a net worth of $85.2 billion. Buffett’s birthplace is Omaha, Nebraska, where he continues to work and live. He has always had an eye for business and making money, purchasing his first stock at the age of 11 in 1940, along with many side businesses throughout his youth.

Buffett established Buffett Partnership Ltd. in 1956 and it was extremely successful with a compounded growth rate of 29.5%. However, he ceased operations in 1969 after establishing a majority ownership in a textile mill, Berkshire Hathaway. By 1985, Buffett had ceased all textile manufacturing and established a holdings company. 

Buffett’s best investments

Berkshire Hathaway is worth roughly $390 billion today with many well-known subsidiaries such as GEICO, Dairy Queen and See’s Candy. Buffett has followed a buy-and-hold approach to investing through turbulent times such as the Great Recession. The investments have generated eye-popping returns for Berkshire shareholders through Buffett’s astute capital allocation, returning a overall gain of 2,744,062% from 1964-2019.

Buffett was urged by friend and vice-chairman Charlie Munger to move away from cigar-butt plays (buying shares of a faltering business trading for less than book value) and to buy stakes in thriving businesses in order to impact the bottom line. Coca-Cola (NYSE: KO) is not only Buffett’s favourite drink, but one of Berkshire’s largest holdings, amassing a total of 400 million shares since 1988. Berkshire has made an unrealised gain of roughly $16 billion at the time of writing, excluding dividends. Coca-Cola has continued to increase their dividend with the last dividend of $0.41 a share meaning that Berkshire will receive $656 million in dividends in 2020 alone.

In recent years, Berkshire has ventured into technology companies such as Apple (NASDAQ: APPL) which is a move away from more traditional business such as insurance. Buffett views Apple as a consumer company rather than a technology one and has stated that he would love to own the full company. Apple is Berkshire’s most valuable holding by far, owning 5.6% of the company. Apple has proved to be one of Buffett’s best investments with a cost basis of $36 billion and has nearly doubled in value in under 5 years. 

Buffett’s worst investments

Buffett has not been immune to mistakes. For example Berkshire bought Dexter shoes in 1993 and in more recent times invested in Kraft Heinz (NASDAQ: KHC), costing Berkshire huge amounts of money. Dexter reportedly cost Berkshire $433 million in cash and 25,203 class A shares. Buffett’s assessment of a strong competitive advantage eroded within a few years due to the cheap imports of shoes. Buffett’s error in giving away stock compounded stating in his 2008 annual letter “I gave away 1.6% of a wonderful business – one now valued at $220 billion – to buy a worthless business”. 

The investment in Kraft Heinz (Berkshire and 3G Capital merged Kraft and Heinz) has performed poorly due to the failure of the company to keep up with changing consumer taste in recent years away from processed and packaged food. The stock has lost more than three-quarters of its value since its highs in 2017. As of the 31st of December 2019, Berkshire’s $13.8 billion investment was worth $10.5 billion and the stock price has continued to decrease since that date.

Succession plan

Buffett will be 90 years old this summer and although there has been no explicit succession plan made public, there is an inference in Buffett’s annual letter that a plan is in place. Buffett commended Ajit Jain and Greg Abel in his 2018 annual letter to shareholders: “Berkshire blood flows through their veins”. The annual meeting in May 2020 will be held without shareholders present due to the outbreak of covid-19 as it would pose health risks.

Buffett has been pursuing an “elephant-sized acquisition” with a cash pile of $128 billion at Berkshire which may be utilized if markets continue to decline. He has a tendency to “Be fearful when others are greedy and greedy when others are fearful.” The valuation of stocks has been cause for concern for Buffett in recent years due to his value investing style, along with a company that will impact both the top and bottom line at Berkshire.

Buffett topped the Forbes list of billionaire givers donating $14.7 billion from 2014-18. He has also pledged to donate 99% of his net worth (the majority in Berkshire stock) in the 10-15 years after his death to a number of charitable causes such as the Bill and Melinda Gates Foundation.

Although the Oracle of Omaha has been a vital part of Berkshire’s success, as he reaches his 90th year, he remains upbeat about the future, and in his own words, “your company is in good shape for whatever the future brings.”

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.