- Warren Buffett’s Berkshire Hathaway sold its position to Costco after investing more than 20 years ago, it reported this week.
- The billionaire investor’s company increased its stake in the retailer from 355,000 shares worth $ 32 million in 1999 to 4.3 million shares worth $ 1.3 billion in June this year.
- The sale came as a shock because Buffett was investing in the long term, two of Berkshire̵
- “If you’ve been involved in such a business once or twice in your life, you’re a very happy person,” Munger told Costco in 2011.
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Warren Buffett’s Berkshire Hathaway revealed this week that it abandoned its stake in Costco last quarter, coming out of an investment made more than 20 years ago. The sale is surprising for several reasons.
The investor’s company increased its position in the retailer from 355,000 shares worth $ 32 million in December 1999 to 4.3 million shares worth $ 1.3 billion at the end of June this year. Costco’s share price jumped from less than $ 50 north to $ 300 over that time period, which is approximately a 500% increase.
Many investors would be tempted to cash in on money at the moment, but Buffett said “his favorite tenure is forever.”
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The close ties between Berkshire and Costco add to the mystery. Charlie Munger, Buffett’s longtime business partner and vice president of Berkshire, has been Costco’s director since 1997 and personally owns more than $ 60 million worth of shares last month, according to regulators.
Susan Decker, another Berkshire CEO, is also on Costco’s board, strengthening the two companies’ close relationship. In addition, Buffett and Munger have garnered praise for Costco many times over the years.
“Costco is an absolutely great organization,” Buffett told Berkshire’s annual shareholders’ meeting in 2000. “We had to own a lot of Costco over the years. Charlie was for it, but I blew it.”
Munger shared some of his reasons to admire the company – which sells products cheaply through hundreds of member-only warehouses – at the 2011 Berkshire meeting.
He said: “Costco is a business that has become the best in the world in its category and has done so with exceptional meritocracy and extremely ethical debt, self-imposed to take full advantage of its costs as quickly as possible. to accumulate them and pass them on to customers. And, of course, this created fierce customer loyalty. “
“It was a great business to watch,” Manger continued. “If once or twice in your life you are involved in such a business, you are very lucky.”
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Buffett followed Munger’s comments, mocking his partner Costco’s obsession with a fictional story that can be found entirely in CNBC’s Warren Buffett’s archive.
“Recently, Charlie and I were on a plane that was hijacked,” he said. “The kidnappers chose us as the two dirty capitalists who really had to be executed.”
“But they were a little embarrassed by that,” Buffett continued. “They didn’t really mind us, so they said each of us would be given one request before we were shot, and they turned to Charlie and said, ‘What would you want as your request?’ “
“I would like to give another speech on the virtues of Costco, with illustrations,” Manger replied in Buffett’s story.
“Well, that sounds pretty reasonable to me,” the kidnapper replied. “And what would you like, Mr. Buffett?”
“Shoot me first,” Buffett said.
Buffett and Munger showered Costco with compliments as early as the 2018 annual meeting. “I like it all,” Munger said, noting the company’s cheap real estate, competitive positions and quality staff.
“Costco has a huge appeal to its constituency and they surprise and delight their customers,” Buffett said. “There’s nothing like it in business. If you’ve made customers happy, you’re far from home.”
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Berkshire Costco’s position was not significant in size: Buffett’s company owned only about 1% of the business in June, and the holding accounted for less than 1% of the total value of its portfolio.
Buffett and Munger’s repeated praise of Costco for more than two decades, the trader’s deep ties to Berkshire and Buffett’s historical aversion to selling high-quality farms make the sale an undeniable surprise.