Why this matters?
I published the two articles “The commonalities of Buffett portfolio – cheap, fixed income, repurchase” and “Possibility of long-term holdings, Deep dive on Buffett’s case” previously, which aroused many readers afterwards. And a lot of echoes from the financial media. The article you read now will make persistent efforts to analyze from another perspective why Buffett has such great confidence to bet more than 20% of the shares in a few companies.
This is not only a question of the amount of money, we can learn from Buffett’s operations of these companies, and learn from his analysis of listed companies, competitiveness, the possibility of long-term holdings, and even the lessons of his success and failure.
But why is it worth Buffett betting so much money on this company?
Companies list Buffett owns more than 20%
As early as 1964, Buffett bought the stock of American Express (ticker: AXP) for the first time. He made a fortune from this investment, but sold the stock within a few years.
Buffett rekindled his interest in American Express in 1993. It is now Berkshire’s (ticker: BRK.A and BRK.B ) second-longest held position. American Express ranks fifth in Berkshire’s portfolio. But while Berkshire owns a 20.3% stake in Amex, his agreement with Amex is that, as long as Stephen Squeri is CEO, he will always retain the majority of his shares, as recommended by the board of directors. to vote.
Berkshire owns 40.1% of Davita (ticker: DVA). DeVita owns more dialysis services than any other company because it is not a Berkshire subsidiary. Buffett first started investing in Davita in 2011.
If you look at the list of subsidiaries on Berkshire’s website, you’ll find Kraft Heinz (ticker: KHC). However, Berkshire’s stake in the food company is actually only 26.6%. Buffett initially partnered with 3G Capital to acquire Heinz in 2013, and backed the merger of Heinz and Kraft Foods in 2015 to become Kraft Heinz.
Liberty Media Group
Berkshire owns shares in several of Liberty Media’s seven publicly traded companies. Berkshire’s largest position in the group is Liberty Media’s A shares (ticker: LSXMA), with a 20.6% stake. Berkshire also owns a 19.8 percent stake in Liberty SiriusXM Group and a 3.7 percent stake in Formula One Group, both of which are part of Liberty Media Group.
In the first half of 2022, Berkshire purchased about 17% of the outstanding shares of Occidental Petroleum (ticker: OXY). But Buffett continued to buy oil stocks in the third quarter. Berkshire now owns 21.4 percent of Occidental Petroleum. Don’t be surprised if Buffett buys more. In August, Berkshire received approval from the Federal Energy Regulatory Commission (FERC) to acquire up to 50% of Occidental’s shares.
The commonality among these companies
No technology stocks, why?
This should come as no surprise. Because Buffett has repeatedly stated in the past that his circle of competence is not in the technology industry, and technology companies are changing too fast, and their valuations and fluctuations are too high. To keep acumulating huge position of technology companies is not easy.
But I discussed in 1-3 of my book “The Rules of 10 Baggers” that Buffett has changed a lot in this regard in recent years.
While American Express has long been under intense competition from two major credit card networks, Visa (ticker: V ) and Mastercard (ticker: MA ), the company’s long-term outlook remains bright, and card usage should continue to increase . Business users, in particular, will almost certainly continue to flock to Amex because of its many unique offerings that require an Amex membership.
For two major credit card networks, please see my posts “The differences between Visa and Mastercard?” and “Has the moat of ubiquitous credit card networks loosened?” before.
DaVita has more than 3,000 hemodialysis centers around the world and is the second largest dialysis service operator in the United States.
Although he admits he bought Kraft Heinz with expensive price, the uniqueness of this company in the food industry still has a considerable moat and its irreplaceability. My guess is that this is why Buffett still holds so large shares after 3G Capital repented of dismantling the partnership.
Liberty Media Group
Liberty Media Group’s main business is cable TV. Since 1990, it has carried out continuous mergers and acquisitions to expand its scale. And Buffett has always had a unique preference for the media industry, so it is not surprising that he holds a large number of Liberty Media Group shares.
In addition to looking at the company’s energy fundamentals in recent years, Occidental Petroleum’s transition to renewable energy is exciting news. Occidental is investing in carbon capture projects and other clean energy services and is currently the world’s largest carbon capturer.
Almost all long term holdings
These holdings are very long-term holdings, especially American Express, which started buying in 1993. The shortest is Occidental Petroleum, which only started buying in 2019.
The significance with more than 20% stake
To hold 5% of the shares, the consent of the SEC must be obtained. As mentioned earlier, in August 2022, Berkshire was approved by the Federal Energy Regulatory Commission (FERC) to acquire up to 50% of Occidental Petroleum’s shares.
Difficulty selling shares
Since the holdings of each of Buffett’s companies are too large, not only does it take a lot of time to accumulate to reach the percentage set by Buffett, but also needs to be sold slowly when the company’s competitiveness or fundamentals deteriorate. , it becomes Buffett’s disadvantage.
Cases of Buffett Holding Large Shares
The most famous one
At the end of 2016, Buffett’s Berkshire held an 8.59% stake in IBM (US stock code: IBM). He started buying IBM in 2011. In 2018, he announced that he had sold most of his IBM shares. The average purchase price was as high as US$170. Dollar.
This case was not very successful, but Buffett learned a lesson from it. While selling IBM, he switches to Apple (tickere: AAPL) at the same time. The biggest contributor to not falling too far behind the S&P 500 in the past decad.
In my book “The Rules of 10 Baggers“, I discussed the history that Buffett owned IBM share:
- Sections 1-3, page 040, on Buffett’s tech holdings
- Section 3-2, page 112, for a detailed discussion of the history of Buffett’s holdings of IBM stock
The most failed one
Buffett also once owned a company with a fairly large shareholding, but it was not very successful (success is not measured by whether it makes money only), and he has learned a lot from this shareholding. Because this company used to be his fourth largest holding. In 1989 and 1990, he held about 10% of the company’s shares in Wells Fargo Bank (ticker: WFC). It can be seen that he valued this company so much and put a lot money on it.
This company is the Wells Fargo Bank that my blog once discussed (“Wells Fargo, a major holding once praised by Buffett and Munger“). He started buying this company in 1989, and in May 2022 announced that he had sold all of his Wells Fargo shares in the first quarter. The unexpected episode is that in the last year when Buffett almost sold out the company’s stock, the stock price of Wells Fargo rebounded miraculously and sharply. Buffett chose to give up and not wait. I personally think his decision was correct. For detailed reasons, please refer to my article.
The most successful one
Of the other stocks in which Berkshire owns 20% or more, which is the best long-term pick? I vote for American Express.
Over the years, Buffett has made a lot of money on American Express. I think he will continue to hold.
- “Why Buffett deserves further study?“
- “What helps Buffett to get his investment idea?“
- “How Buffett Structures His Long-Term Investment Portfolio“
- “Possibility of long-term holdings, Deep dive on Buffett’s case“
- “The commonalities of Buffett portfolio – cheap, fixed income, repurchase“
- “Wells Fargo, a major holding once praised by Buffett and Munger“
- “The companies Buffett owns more than 20%“
- “The differences between Visa and Mastercard?“
- “Has the moat of ubiquitous credit card networks loosened?“
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