Berkshire Hathaway Inc. (BRK-A) and Warren Buffett often are followed in corporate America as the undisputed investment kingmakers of all time. And 2013 has been an incredibly strong year, with gains so far of nearly 30% for this year alone. Imagine if Buffett's gains included all the opportunity cost of past investments that were sold that should not have been. 24/7 Wall St. has evaluated many of the past Warren Buffett and Berkshire Hathaway stock sales and found multiple instances of positions that the Oracle of Omaha never should have surrendered.
The aim is not simply to act as a Monday morning quarterback, nor merely being a critic after the fact. Buffett is not immune from mistakes, but the reality is that his picks through time have been exponentially more significant than his losses. Our aim is to review what happens along the way that interrupts the "buy and hold forever" mentality that Buffett has done so well with over the past five decades or so -- and to learn from it.
The reality is that Buffett and Berkshire Hathaway Inc. (BRK-B) have made many purchases and sales through time. Some sales were for huge gains, while others were at a loss. Buffett and his portfolio managers have such a great track record and have made such large gains that they do not have to justify any single loss to anyone. That being said, there are solid investing and strategic lessons to be learned here for investors of all sorts.
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Dollar General Corp. (DG) was purchased back in 2011 and was initiated almost certainly by Todd Combs. The position started out small at 1.5 million shares, but ultimately it grew to almost 4.5 million shares. This is one that Team Buffett sold out of in 2012 after seeing large gains. The sin in selling out of Dollar General was not the gain, nor was it that the valuation was misread. The sin in selling out here is that the dollar store theme, which is more like an under $5 one now, is a trend of the future for the demographics of America. This was and is a stock to own for the whole decade, and chances are high that this company has much higher share prices ahead, even though it is close to an all-time high now.
General Dynamics Corp. (GD) was likely another position that was added on by Combs. It was a new position of more than 3 million shares in the third quarter of 2011 initially. Shares averaged about $60 during that quarter, and they were sold in the second quarter of 2013 when shares averaged about $80. The price was recently around $88, and Wall Street now has a consensus price target of more than $95, plus you get a 2.5% yield even at the all-time highs. Maybe Combs just wanted to lock in the gains here, but the reality is the driving force behind the sale was and remains a mystery.
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Intel Corp. (INTC) was added as a new position in the third quarter of 2011, and it was increased during the fourth quarter of 2011 to more than 11 million shares. This was another Combs pick and represented the first real technology investment by Berkshire Hathaway. It was obvious that Intel was missing the boat on the smartphone trend and that the death of the personal computer was hurting it. What has changed is that Intel is now fabricating chips for other companies, and it also is emerging into the mobile market just now. Berkshire Hathaway actually made a quick buck here, buying around $22 and selling likely north of $27, but the reality is that Intel has become a stealth value stock. We recently culled through its developments and research reports, and Intel could be worth $30 real soon, and even may be worth $40 or $50 in the years ahead.
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Moody's Corp. (MCO) was very controversial, and we saw that Buffett was selling even back in 2010. The stake has fallen from 48 million shares to 30 million, and as of June 30, 2013, Team Buffett owned just under 25 million shares. Buffett was able to withstand the pressure of holding this through and after the recession because he had huge gains in the position. In all honesty, we never have been a fan of this structure of a ratings agency alone with a market cap of more than $15 billion for a great stock. However, money is money and Moody's share price is back up to its pre-recession peak. It turns out that Buffett was right in that it would survive the scandal of missing the ratings blow-ups from collateralized debt obligations (CDOs) and other structured bond products that helped lead the United States into a recession. If you back out the dividends, Moody's is effectively at new highs.
Republic Services Inc. (RSG) was bought in what appeared to be a Bill Gates piggyback trade. For some reason, Buffett sold during the third quarter of 2010 when shares averaged about $28. Republic has not exactly been a stellar performer, as the stock is now around $34, but the business still matches the Buffett mentality for any investor today and was even one of our picks to own for the whole decade. It may simply be that Buffett did not want too many investments and trades tied up with Gates, or maybe he did not want the dirty and environmental association of garbage. Republic enjoys a duopoly or oligarchy in its markets, and it enjoys that there are significant barriers to entry. If Buffett wants to own a stock forever, owning the rights to waste disposal and owning garbage dumps that are impossible to move may have been an oversight when he sold. More than 10 million Republic shares was never a huge stake for Berkshire Hathaway, but it does fit in with a "hold forever" outlook and strategy for everyday investors even now.
Walt Disney Co. (DIS) was in the Berkshire Hathaway portfolio as long ago as the 1960s, which was at one point 4% of the company for only about $5 million. Buffett admitted that selling was one of the biggest mistakes, and we listed this as one of the greatest investments of Buffett's history. Then there was the Capital Cities/ABC deal that Berkshire Hathaway bought for $345 million in the 1990s, and Buffett received some $1.2 billion in cash and 21 million more shares of Disney in 1996. Buffett sold through time here, but it is obvious that he still would admit selling Disney was one of his biggest mistakes. Bob Iger's only big miss has been "The Lone Ranger," but the purchase of Marvel, Star Wars and other properties has sealed the profit machine of Disney for the next generation.
This final position we count as one, even though it was actually two different stakes: Home Depot Inc. (HD) and Lowe's Companies Inc. (LOW). That Berkshire Hathaway only dabbled minimally in both was a signal that exposure to the home improvement and retail were key here, and it almost did not matter which was owned because both were poised to rise. Home Depot was sold out as a holding in mid-2010, and Lowe's was sold out during the fourth quarter of 2010. Maybe Buffett and his portfolio managers thought there was already ample housing exposure at the time, but the reality is that these stocks do represent one of the clearest shots into housing and retail. Both Lowe's and Home Depot shares have more than doubled since Buffett sold out. Oops.
Again, the aim here is not simply to point a finger, nor to Monday-morning quarterback an investing strategy. The aim is to learn from mistakes, and Buffett has been very candid about having made some mistakes along the way. We think he would agree that there are lessons to be learned from those mistakes, not just for today. Future investment decisions can be informed by this too.