Growth5 Blog

Monday, March 8, 2010

Warren Buffett: Buy and Hold Forever (or as long as you can)

At some point here soon we will be blogging about the recently released Berkshire Hathaway annual shareholder letter – Mr. Buffett is always good for some tidbits of investing wisdom.

In the meantime, Financial Services Technology put together the chart below (click to expand) showing the companies in the Berkshire portfolio, what year they were purchased, and whether or not Berkshire owns 100% of the company (company names with the black background) or just a portion of the company (company names with the white background). The partial ownership companies circle is sized to show the % that Berkshire owns - the smaller the circle, the less Berkshire owns of that company.

The chart was created shortly after Berkshire announced its plans for their largest ever acquisition: Burlington Northern Santa Fe Corp ($26.5 billion). Buffett indicated he would need to sell some previous acquisitions in order to have enough cash to complete the transaction for the rail company and still have a "safe" amount of cash left over in Berkshire.

The sale of any assets goes against Buffett's "Buy and Hold Forever" philosophy, but being patient allows Buffett to make moves for companies like Burlington where he feels he can get significant long-term cash flow that he estimates will exceed the future cash flows in the businesses he needs to sell to make the deal.

Buffett's experience in insurance helps to drive his philosophy in equities. In Berkshire's insurance businesses, Buffett and his team are able to invest the "float" (premiums being held to pay future claims) which provides him with what he calls "pretty cheap capital."

When Berkshire buys entire companies, Buffett intends to invest the cash flow from those businesses annually – helping to compound his annual returns while simultaneously increasing the value of the same businesses. Buffett cares much less about what the value of Business X is today though because he never intends to sell it. But it's nice to know the value is there if he needs to.

Disclaimer: the chart below is not perfect, there are some typos, not all of the BH investments are on there, etc... but it does illustrate Warren Buffet's Buy & Hold Forever investing philosophy pretty well. This is not a man constantly flipping companies on speculation.

(Click to expand. When you get to the next screen if you see a little magnifying glass when you hover over the chart, you can click again to make it even larger and thus more legible.)

Thanks to Sean Cohen for forwarding this chart.
Thanks Ted for help with fixing/loading FST's chart.

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