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REUTERS / Rick Wilking
- Warren Buffett’s Berkshire Hathaway sold its Costco position after investing more than 20 years ago, a case revealed this week.
- The billionaire investor’s company has grown from 355,000 shares worth $ 32 million in 1999 to 4.3 million shares worth $ 1.3 billion in June of this year.
- The sale is a shock because Buffett is investing for the long haul, two of Berkshire’s directors sit on Costco’s board, and Buffett and his business partner, Charlie Munger, have repeatedly praised the retailer.
- “If once or twice in a lifetime you’ve been associated with such a business, you’re a very lucky person,” Munger said of Costco in 2011.
- Visit the Business Insider homepage for more stories.
Warren Buffett’s Berkshire Hathaway revealed this week that he abandoned his stake in Costco last quarter, abandoning an investment he made more than 20 years ago. The sale is surprising for several reasons.
The investor’s company increased its position in the big box retailer from 355,000 shares valued at $ 32 million in December 1999, to 4.3 million shares valued at 1.3 billion of dollars at the end of June of this year. Costco’s stock price rose from less than $ 50 to north of $ 300 during that time, an increase of about 500%.
Many investors would be tempted to cash in at that point, but Buffett said his “preferred holding period was 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 a director of Costco since 1997 and personally owned more than $ 60 million of his stock last month, according to regulatory documents.
Susan Decker, another director from Berkshire, also sits on Costco’s board of directors, further strengthening the close relationship between the two companies. Plus, Buffett and Munger have praised Costco several times over the years.
“Costco is an absolutely fabulous organization,” Buffett said at Berkshire’s annual shareholders meeting in 2000. “We should have owned a lot of Costco over the years. Charlie was for it, but I messed it up.”
Munger shared some of his reasons for admiring the company – which sells bulk produce at discount prices through hundreds of member-only warehouses – at the Berkshire meeting in 2011.
He said: “Costco is a company that has become the best in the world in its class, and it has done so with extreme meritocracy and an extreme ethical, self-imposed duty to reap all of its cost advantages. as fast as she could accumulate them. and pass them on to customers. And, of course, that created fierce customer loyalty. “
“It was a wonderful undertaking to watch,” continued Munger. “If once or twice in a lifetime you have been associated with such an enterprise, you are a very lucky person.”
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Buffett followed Munger’s comments by poking fun at his partner’s Costco obsession with a fictional story, which can be found in its entirety in the CNBC Warren Buffett archives.
“Charlie and I were recently on a plane that was hijacked,” he said. “The hijackers chose us as the two dirty capitalists they really had to execute.”
“But they were a little confused about it,” Buffett continued. “They really didn’t have anything against us, so they said each of us would get a request before they shot us, and they turned to Charlie and they said, ‘What do you want like your request?'”
“I would like to give my talk about the virtues of Costco again, with illustrations,” replied Munger, in Buffett’s account.
“Well, that sounds pretty reasonable to me,” the hijacker replied. “And what do you want, Mr. Buffett?”
“Shoot me first,” Buffett joked.
An unexpected exit
Buffett and Munger showered Costco with compliments as recently as the 2018 annual meeting. “I love everything about it,” Munger said, ticking off the company’s cheap real estate, competitive position and people. quality.
“Costco has a huge customer appeal and they surprise and delight their customers,” Buffett said. “There is no such thing in business. If you’ve delighted customers, you’re a long way from home.”
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Berkshire’s Costco position was not significant in terms of scale: Buffett’s company owned only about 1% of the business in June, and the stake was less than 1% of its total portfolio value.
However, Buffett and Munger’s repeated praise of Costco for more than two decades, the retailer’s deep ties to Berkshire, and Buffett’s historic aversion to selling high-quality holdings make the sale an undeniable surprise.
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