- Warren Buffett’s Berkshire Hathaway sold its Costco position after investing more than 20 years ago, an application revealed this week.
- The billionaire investor’s business grew its stake in the big-box dealer from 355,000 shares worth $ 32 million in 1999 to 4.3 million shares worth $ 1.3 billion in June this year.
- The sale is a shock because Buffett famously invests in the long run, two of Berkshire̵
- “If you’re once or twice in your life associated with such a business, you’re a very lucky person,” Munger said of Costco in 2011.
- Visit the Business Insider website for more stories.
Warren Buffett’s Berkshire Hathaway revealed this week that it dumped its stake in Costco last quarter and completed an investment it made more than 20 years ago. The sale is surprising for several reasons.
Investor’s company grew its position in the big box dealer 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 stock price rose sharply from less than $ 50 to north of $ 300 during this time period, an increase of approximately 500%.
Many investors would be tempted to pay out money at the time, but Buffett has famously said that his “favorite period is forever.”
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The close ties between Berkshire and Costco contribute to the mystery. Charlie Munger – Buffett’s longtime business partner and Berkshire’s vice president – has been director of Costco since 1997 and personally owned more than $ 60 million of his share from last month, regulatory records show.
Susan Decker, another Berkshire director, also sits on Costco’s board of directors, cementing the close relationship between the two companies. In addition, Buffett and Munger have praised Costco many times over the years.
“Costco is an absolutely fabulous organization,” Buffett said at Berkshire’s annual shareholders’ meeting in 2000. “We should have had a lot of Costco over the years. Charlie was for it, but I blew it up. “
Munger shared some of his reasons for admiring the company – which sells bulk products at cheap prices via hundreds 0f for members only – at Berkshire’s 2011 meeting.
He said: “Costco is a company that became the best in the world in its category, and it did so with an extreme meritocracy and an extreme ethical duty, self-imposed, to take all its cost benefits as quickly as it could accumulate them and pass them on. them to the customers. And, of course, it created tremendous customer loyalty. “
“It’s been a wonderful business to see,” Munger continued. “If you’re once or twice in your life associated with such a business, you’re a very lucky person.”
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Buffett followed Munger’s comments by throwing fun at his partner’s Costco obsession with a fictional story that can be found in its entirety in CNBC’s Warren Buffett archive.
“Charlie and I were recently on a hijacked plane,” he said. “The hijackers chose us as the two dirty capitalists that they really had to perform.”
“But they were a little appalled by it,” Buffett continued. “They didn’t really mind us, so they said we would each get a request before they shot us, and they turned to Charlie, and they said, ‘What do you want as your request?'”
“I would like to once again give my talk on Costco’s virtues with illustrations,” Munger replied in Buffett’s narrative.
“Well, that sounds pretty reasonable to me,” the hijacker replied. “And what do you want, Mr. Buffett?”
“Shoot me first,” Buffett said.
An unexpected outcome
Buffett and Munger flooded Costco with compliments as late as the 2018 annual meeting. “I like everything about it,” Munger said, highlighting the company’s low-cost property, competitive position and quality staff.
“Costco appeals enormously to its constituency, and they surprise and delight their customers,” Buffett said. “There’s nothing in the business. If you have happy customers, you’re far from home.”
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Berkshire’s Costco position was not significant in scale: Buffett’s company owned only about 1% of the company in June, and its holdings accounted for less than 1% of the total value of its portfolio.
But Buffett and Munger’s repeated praise of Costco for more than two decades, the dealer’s deep ties to Berkshire and Buffett’s historic reluctance to sell high – quality holdings make the sale an undeniable surprise.