Besides what he says about banks, brokers and succession, not to mention deals and bargains, its the share investments of Berkshire Hathaway which attracts interest from investors large and small.
Berkshire increased its ownership interest last year in each of its “Big Four” investments – American Express, Coca-Cola, IBM and US bank, Wells Fargo.
"We purchased additional shares of IBM (increasing our ownership to 7.8% versus 6.3% at year end 2013). Meanwhile, stock repurchases at Coca-Cola, American Express and Wells Fargo raised our percentage ownership of each,” he wrote.
"Our equity in Coca-Cola grew from 9.1% to 9.2%, our interest in American Express increased from 14.2% to 14.8% and our ownership of Wells Fargo grew from 9.2% to 9.4%.
"These four investees possess excellent businesses and are run by managers who are both talented and shareholder-oriented. At Berkshire, we much prefer owning a non-controlling but substantial portion of a wonderful company to owning 100% of a so-so business. It’s better to have a partial interest in the Hope Diamond than to own all of a rhinestone.
“If Berkshire’s year end holdings are used as the marker, our portion of the “Big Four’s” 2014 earnings before discontinued operations amounted to $4.7 billion (compared to $3.3 billion only three years ago).
"In the earnings we report to you, however, we include only the dividends we receive – about $1.6 billion last year. (Again, three years ago the dividends were $862 million.) But make no mistake: The $3.1 billion of these companies’ earnings we don’t report are every bit as valuable to us as the portion Berkshire records,” Buffett said.
Buffett pointed out that Berkshire Hathaway had unrealised gains on the big four stocks of $US42 billion at the end of 2014.
In his 2014 letter to shareholders of Berkshire Hathaway Buffett owned up to the loss-making play in stumbling giant UK retailer, Tesco Plc, while detailing his top 15 investments.
Buffett said he blamed himself for “dawdling” in unloading his investment int Tesco last year. In his explanation, he also offered investors one of his pearls of investing wisdom.
The Tesco stake of 415 million shares was valued at $US1.67 billion at 2013, but after the series of profit downgrades, management firings and accounting irregularities (now being investigated) Berkshire sold out at a stonking great loss of more than $US400 million. Here’s how he explained it:
“In 2013, I soured somewhat on the company’s then-management and sold 114 million shares, realizing a profit of $43 million. My leisurely pace in making sales would prove expensive. Charlie calls this sort of behavior “thumb-sucking.” (Considering what my delay cost us, he is being kind.)
“During 2014, Tesco’s problems worsened by the month. The company’s market share fell, its margins contracted and accounting problems surfaced. In the world of business, bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by, you meet his relatives.”
Buffett said the dawdling resulted in an after-tax loss of $444 million by the time Berkshire was no longer a Tesco shareholder. That, he added, is about 0.2% of Berkshire’s net worth. Only three times in 50 years has Berkshire recorded losses from a sale equal to more than 1% of its net worth.
Here are Berkshire’s 15 biggest holdings at the end of 2014, by dollar value, as listed by Berkshire in alphabetical order.
The three newcomers to the list are DaVita HealthCare Partners Inc., US tractor and agricultural implements maker, Deere & Co. and USG Corp, America’s biggest building products group. Berkshire owns 30% of USG, the biggest share of a company on this list.
The only holding whose cost exceeded market value at December 31 is International Business Machines Corp.
American Express Co. — $14.11 billion (all US dollars)
Coca-Cola Co — $16.89 billion
DaVita HealthCare Partners Inc. — $1.40 billion
Deere & Co. — $1.37 billion
DIRECTV — $2.13 billion
Goldman Sachs Group, Inc. — $2.53 billion
IBM — $12.35 billion
Moody’s Corp. — $2.36 billion
Munich Re — $4. 02 billion
Procter & Gamble Co. — $4.68 billion
Sanofi — $2.03 billion
U.S. Bancorp — $4.36 billion
USG Corp. — $1.21 billion
Wal-Mart Stores, Inc. — $5.82 billion
Wells Fargo & Co. — $26.50 billion
Berkshire is sitting on $US63.27 billion of cash and its most recent purchases have been comparatively small.
These have included the AltaLink electric transmission unit in Canada, and Van Tuyl Automotive, the fifth-largest U.S. auto retailer.
Berkshire also plans to acquire Procter & Gamble Co’s Duracell battery unit later this year. The Procter & Gamble shares are held under a contract of sale for that deal.
And Berkshire has one major equity position that is not included in the table: We can buy 700 million shares of Bank of America at any time prior to September 2021 for $5 billion. At yearend these shares were worth $12.5 billion.
"We are likely to purchase the shares just before expiration of our option. In the meantime, it is important for you to realize that Bank of America is, in effect, our fourth largest equity investment – and one we value highly,” Buffett added.
