Following the investment strategy of legendary investor Warren Buffett has not been a bad idea for investors. The CEO of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has a long, long history of picking and owning great companies. This has generally gone well for the shareholders of Buffett and Berkshire.
However, while Buffett’s preferred holding period may be forever, sometimes he decides it’s time to unplug a long-standing stock. When Berkshire announced its last quarterly portfolio moves, one of Buffett’s oldest holdings got the informal start. Additionally, another longtime mainstay in Berkshire’s portfolio could be on its tail in the coming months. Below, we’ll take a look at the five titles and what Buffett did at the end of 2020 to turn things around.
No change at many of Buffett’s older properties
The stock that has been in the Berkshire portfolio the longest is Coca Cola (NYSE: KO). Buffett made a purchase of 400 million shares, adjusted for subsequent stock splits, in 1988. This stake has remained intact for the past 33 years, and a steady growth in dividends has given Buffett increasing rewards for his continued participation.
Coca-Cola having paid $ 1.64 per share in total dividends over the past year, Berkshire earned $ 656 million in dividend income in 2020 – a reasonable return on an estimated $ 20 billion stake that ranks among the three largest positions in the portfolio. It also represents a 9% stake in Coca-Cola.
Nothing has changed in the situation in Berkshire’s most recent report. As long as there is a can of Coca-Cola on the table in front of Buffett at Berkshire’s annual meeting of shareholders, there will likely be no sale of his Coca-Cola shares in the future.
American Express (NYSE: AXP) is another top pick from Buffett and has been a presence in the portfolio since 1993. The Berkshire position has remained constant at around 151.6 million shares for years and is currently competing for the position with Coca-Cola at a just under $ 20 billion.
American Express’s 1.3% dividend yield is not as lucrative as that of the soft drink giant, but AmEx stock has generated more growth in its share price. Buffett left his nearly 19% stake in American Express unchanged to end 2020, and it is likely to hold its own for the foreseeable future.
Finally, Moody’s (NYSE: MCO) has been a Buffett choice for over two decades. Unlike AmEx and Coca-Cola, Berkshire has sold a substantial portion of its Moody’s holdings in the past, particularly in the aftermath of the 2009 financial crisis.
Nonetheless, Buffett liked the rating agency’s business enough to maintain a 13% stake worth around $ 7 billion at recent prices. Barring another controversy of a type similar to what prompted the initial sale, it seems likely that Moody’s will maintain a presence in the portfolio.
One bank is shown the door – and another might follow
Buffett made two changes that affected the other pair of his five oldest stocks. M&T Bank (NYSE: MTB) has been part of Buffett’s holdings since investing in preferred stocks in the early ’90s. However, M&T was one of the many banks Berkshire gradually downsized from early 2020. Ultimately, it only took three-quarters for the bank to be completely wiped out of Buffett’s holdings.
In addition, Wells fargo (NYSE: WFC) continued to see a sharp decline in the size of its position within the Berkshire portfolio. With a history dating back to 1989, Wells sometimes had more than 10% of its outstanding shares in Buffett’s hands, with a position exceeding nearly 480 million shares. Over the past year, that stake has grown from 323 million shares at the start of 2020 to just 52.4 million at the end of the year.
The $ 1.6 billion value of that stake now represents less than 1.3% of Wells Fargo’s outstanding shares. Given the constant shrinking, it seems almost certain that Wells Fargo will disappear into sunset in 2021 – and many would say good riddance, given the bank’s lingering controversies over the years.
Changing the guard?
Some investors conclude that the sale of long-held shares to Berkshire means Buffett no longer really manages the firm’s portfolio. Indeed, the CEO has apparent heirs behind the scenes, ready and willing to take over if necessary.
Most Berkshire shareholders, however, want Buffett to be in charge for as long as possible. This might mean replacing better choices with long-standing stocks in the portfolio, but that’s okay if it means holding the most suitable investments to produce big long-term gains.
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