Berkshire Hathaway on February 25 published the annual report along with the most awaited Warren Buffett’s letter to the investors. In his letter, the billionaire talked about his investment in Coca-Cola and American Express and how he turned $2.6 billion into $47 billion over two decades, giving a lesson to investors that it takes just a few winners to work wonders. “In August 1994 – yes, 1994 – Berkshire completed its seven-year purchase of the 400 million shares of Coca-Cola we now own. The total cost was $1.3 billion – then a very meaningful sum at Berkshire,” Warren Buffett said.
The company received a $75 million cash dividend from Coke in 1994 and by 2022, the dividend had increased to $704 million. “Growth occurred every year, just as certain as birthdays. All Charlie and I were required to do was cash Coke’s quarterly dividend checks. We expect that those checks are highly likely to grow.”
The same happened with American Express. The purchases of Amex were essentially completed in 1995 and it also cost $1.3 billion. Annual dividends received from this investment have grown from $41 million to $302 million. “These dividend gains, though pleasing, are far from spectacular. But they bring with them important gains in stock prices. At year-end, investment in Coke was valued at $25 billion while Amex was recorded at $22 billion. Each holding now accounts for roughly 5% of Berkshire’s net worth, akin to its weighting long ago.”
Instead of Amex and Coca-Cola, if Berkshire had invested the same amount in a high-grade 30-year bond then it would represent an insignificant 0.3% of Berkshire’s net worth. “Assume, for a moment, I had made a similarly-sized investment mistake in the 1990s, one that flat-lined and simply retained its $1.3 billion value in 2022. (An example would be a high-grade 30-year bond.) That disappointing investment would now represent an insignificant 0.3% of Berkshire’s net worth and would be delivering to us an unchanged $80 million or so of annual income,” Warren Buffet added.
Warren Buffett’s lesson for investors
The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.