The Buffett

 
 


  • Warren Buffett Stock - Investment Details since 1967

    1. --------------------------------------------------------------------

      Period 7

    2. Berkshire's earnings 1993-1996
    3. Dexter shoe : worst investment of Berkshire
    4. Berkshire's investment in American express
    5. Selling cap cities prematurely for second time
    6. Berkshire's investments 1993 to 1996
    7. Berkshire's investment in US Air
    8. Berkshire's investment in Helzberg diamonds
    9. Ajit Jain and Berkshire's super cat large risk insurance business
    10. Cap cities merger with Disney
    11. Berkshire's investment in R.C.Wiley Home furnishings
    12. Berkshire's investment in Flight safety international
    13. Berkshire's investment in Kansas Banker's security
    14. Berkshire's earnings from 1993-1996 (All numbers in 000s)

      SEGMENT
      1993     1994     1995     1996    
      Avg Float
      $2,624,700     $3,056,600     $3,607,200     $6,702,000    
      Insurance Underwriting
      $20,156     $80,860     $11,300     $142,800    
      Insurance investment income
      $321,321     $350,453     $417,700     $593,100    
      Buffalo News
      $29,696     $31,685     $27,300     $29,500    
      Fechheimer
      $6,931     $7,107     $8,800     $9,300    
      Finance businesses
      $14,161     $14,293     $12,600     $14,900    
      Home furnishings (Before 1995 only NFM)
      $10,398     $8,652     $16,700     $16,100    
      Jewelry
      -     -     $19,100     $39,900    
      Kirby
      $25,056     $27,719     $32,100     $24,800    
      Scott Fetzer - Diversified mfg
      $23,809     $24,909     $21,200     $32,200    
      See's candies
      $24,367     $28,247     $29,800     $30,800    
      Shoe group (Before 1993 only HH Brown)
      $28,829     $55,750     $37,500     $41,000    
      World book
      $13,537     $17,275     $7,000     $9,500    
      Other purchase price accounting charges
      ($13,996)     ($19,355)     ($23,400)     ($70,500)    
      Interest on debt
      ($35,614)     ($37,264)     ($34,900)     ($56,600)    
      Shareholder designated contributions
      ($5,994)     ($6,668)     ($7,000)     ($8,500)    
      Others
      $15,094     $22,576     $24,400     $34,800    
      Operating income
      $477,751     $606,239     $600,200     $883,100    
      Investment income / avg float
      12.24%     11.47%     11.58%     8.85%    
      Sale of securities
      $356,702     $61,138     $125,000     $1,605,000    
      SPECIAL ONE TIME GAINS / LOSSES
                     
      Decline in value of USAir preferred stock
          ($172,579)            
      Tax Accruals caused by new acctg rules
      ($146,332)                
      Total
      $688,121     $494,798     $725,200     $2,488,100    

      Share of investment income in Berkshire's overall income. (All numbers in 000s)

      1993     1994     1995     1996    
      Sum of Insurance investment income and gain from sale of securities (S)
      $678,023     $411,591     $542,700     $2,198,100    
      (S) / Total income
      98.53%     83.18%     74.83%     88.34%    


      Dexter shoe. One of the worst investments by Berkshire - In 1991 Buffett perceived HH Brown shoe acquisition with great apprehension. He had all praise for Frank Rooney when he introduced Buffett to a similar great company called Dexter show. It was founded by Harold Alfond in 1956 with a capital of $10,000. In 1993 the company produced 7.5 million pairs of shoes. Even though Buffett was aware of the foreign competition in shoe industry, but he had full hope in Rooney and his team to keep up with that and retain its loyal brands. The company in 1993 had 77 outlets and had 15% market share of Golf shoes in USA. But its core product was regular shoes which was a commodity product with very low barriers for entry. Eight years down the line Buffett acknowledged his mistake by stating the following in his 2001 shareholder's letter.

      "I've made three decisions relating to Dexter that have hurt you in a major way: (1) buying it in the first place; (2) paying for it with stock and (3) procrastinating when the need for changes in its operations was obvious. I would like to lay these mistakes on Charlie (or anyone else, for that matter) but they were mine. Dexter, prior to our purchase - and indeed for a few years after - prospered despite low-cost foreign competition that was brutal. I concluded that Dexter could continue to cope with that problem, and I was wrong."

      American Express. In the mid-1960's, just after the stock was battered by the company's infamous salad-oil scandal, Buffett put about 40% of Buffett Partnership Ltd.'s capital into the stock - the largest investment the partnership had ever made. At a cost of $13 million Buffett partnership was 5% owner of the company. In 1994 Berkshire owned 10% of the company at the cost of $1.36bn. The stock in these 30 years grew by 14% compounded annually. In 1964 the company owned $12.5 million and in 1994 it earned $1.4 billion.

      Selling Cap cities prematurely for second time. Buffett confessed to this mistake in his 1994 shareholder's letter stating that in 1993 he had sold 10 million shares of Cap Cities at $63; at year-end 1994, the price was $85.25. Thus Berkshire lost an opportunity of making an extra $222.5 million. Previously Berkshire had sold our Cap Cities holdings at $4.30 per share during 1978-80. Thus Buffett sold Cap cities twice prematurely.

      Berkshire Hathaway's investments 1993-1996 (All numbers in 000s) except no of shares

      1993

      COMPANY
      No. OF SHARES     COST     MARKET    
      Capital Cities/ABC, Inc
      2,000,000     $345,000     $1,239,000    
      The Coca-Cola Company
      93,400,000     $1,023,920     $4,167,975    
      Federal Home Loan Mortgage corp (Freddie Mac)
      13,654,600     $307,505     $681,023    
      GEICO Corporation
      34,250,000     $45,713     $1,759,594    
      The Gillette Company
      24,000,000     $600,000     $1,431,000    
      General Dynamics Corp
      4,350,000     $94,938     $401,287    
      Guinness PLC
      38,335,000     $333,019     $270,822    
      The Washington Post Company
      1,727,765     $9,731     $440,148    
      Wells Fargo & Company
      6,358,418     $423,680     $878,614    
      Total
          $3,183,506     $11,269,463    

      1994

      COMPANY
      No. OF SHARES     COST     MARKET    
      American Express Company
      27,759,941     $723,919     $818,918    
      Capital Cities/ABC, Inc
      20,000,000     $345,000     $1,705,000    
      The Coca-Cola Company
      100,000,000     $1,298,888     $5,150,000    
      Federal Home Loan Mortgage corp (Freddie Mac)
      12,761,200     $270,468     $644,441    
      GEICO Corporation
      34,250,000     $45,713     $1,678,250    
      The Gillette Company
      24,000,000     $600,000     $1,797,000    
      Gannett Co., Inc
      6,854,500     $335,216     $365,002    
      PNC Bank Corporation
      19,453,300     $503,046     $410,951    
      The Washington Post Company
      1,727,765     $9,731     $418,983    
      Wells Fargo & Company
      6,791,218     $423,680     $984,727    
      Total
          $4,555,661     $13,973,272    

      1995

      COMPANY
      No. OF SHARES     COST     MARKET    
      American Express Company
      49,456,900     $1,392,700     $2,046,300    
      Capital Cities/ABC, Inc
      20,000,000     $345,000     $2,467,500    
      The Coca-Cola Company
      100,000,000     $1,298,888     $7,425,000    
      Federal Home Loan Mortgage corp (Freddie Mac)
      12,502,500     $260,100     $1,044,000    
      GEICO Corporation
      34,250,000     $45,713     $2,393,200    
      The Gillette Company
      24,000,000     $600,000     $2,502,000    
      Wells Fargo & Company
      6,791,218     $423,700     $1,466,900    
      others
      -     $1,379,000     $2,655,400    
      Total
          $5,745,100     $22,000,300    

      1996

      COMPANY
      No. OF SHARES     COST     MARKET    
      American Express Company
      49,456,900     $1,392,700     $2,794,300    
      The Walt Disney Company
      24,614,214     $577,000     $1,716,800    
      The Coca-Cola Company
      100,000,000     $1,298,888     $10,524,000    
      Federal Home Loan Mortgage corp (Freddie Mac)
      64,246,000     $333,400     $1,772,800    
      McDonald's Corporation
      30,156,600     $1,265,300     $1,368,400    
      The Gillette Company
      48,000,000     $600,000     $3,732,000    
      Wells Fargo & Company
      7,291,418     $497,800     $1,966,900    
      The Washington Post Company
      1,727,765     $10,600     $579,000    
      Others
      -     $1,934,500     $3,295,400    
      Total
          $7,910,200     $27,750,600    
       

      US Air. Berkshire invested $358 million in its preferred stock in 1989. By 1994 they were marked down to $89.5 million. This happened because the company was going through tough times and had suspended its dividend since 1990. But by 1997 things turned around. The stock reached $73 from a low of $4. Company also paid back all its dividend that it had halted and called back the preferred stock, giving Berkshire a decent profit. But at the end of this roller coaster ride of 8 years, Buffett acknowledged to have misjudged the terrible economics of the Airline business.

      HELZBERG DIAMOND SHOPS : In May 1994, a week or so after the Annual Meeting, Buffett was crossing the street at 58th and Fifth Avenue in New York, when a woman called out his name. He listened as she told him she'd been to, and had enjoyed, the Annual Meeting. A few seconds later, a man who'd heard the woman stop Buffett did so as well. He turned out to be Barnett Helzberg, Jr., who owned four shares of Berkshire and had also been at the meeting. Barnett then quickly mentioned about the intention of selling his business. As Buffett gets scores of such requests every year so he causally requested for the financial statements of his business to be sent to his office.

      To his surprise he did find the financial statements and the company history when he reached back Omaha. The company had been started by Barnett's grandfather in 1915 from a single store in Kansas City and by 1995 had developed into a group with 134 stores in 23 states. Sales had grown from $10 million in 1974 to $53 million in 1984 and $282 million in 1994. Barnett, then 60, loved the business but also wanted to feel free of it. In 1988, as a step in that direction, he had brought in Jeff Comment, formerly President of Wanamaker's, to help him run things. Berkshire completed the Helzberg purchase in 1995 by means of a tax-free exchange of stock, the only kind of transaction that interested Barnett. Though he was certainly under no obligation to do so, Barnett shared a meaningful part of his proceeds from the sale with a large number of his associates. Buffett was very impressed by Barnett's generosity and was assured that not only the business sold great jewelry, but it itself was a jewel.

      AJIT JAIN AND BERKSHIRE's SUPER CAT AND LARGE RISK INSURANCE BUSINESS : Ajit Jain joined Mike Goldberg's insurance team in 1986 and steadily grew the super cat re-insurance business. Ajit has always been Buffett's blue eyed boy. The main reason behind that is because he operates thru a staff of less than 30 people from Stamford, CT, but contributes to more than half of Berkshire's float ? The growth engine of the company. In 1995 his business insured.(1) The life of Mike Tyson for a sum that was large initially and that, fight-by-fight, gradually declined to zero over the next few years; (2) Lloyd's against more than 225 of its "names" dying during the year; and (3) The launch, and a year of orbit, of two Chinese satellites. The reason customers approach Berkshire for large specialty coverage is because of Berkshire's capital strength and the company's willingness to take sporadic losses in expectation of long term gains. In Buffett's words "I would rather take a bumpy 15% return than a smooth 12% return."

      CAP CITIES' MERGER WITH DISNEY: In 1995 Cap cities merged with Disney. Thus Berkshire got its chunk of Disney shares in the merger. Buffett had first bought Disney shares in 1966 for split adjusted 31cents / share. He sold it in 1967 for 48cents / share. By 1995 each share of Disney was $66 / share.

      R.C. WILEY HOME FURNISHINGS: Mrs. B's son Irv Blumkin identified this great furniture business and told Buffett about it. Bill Child the owner of the company was retiring and wanted a safe place for his prized business. On Irv's recommendation he approached Buffett with an offer to sell his business. They quickly settled on a price and the deal was done. Bill took over the business from his father-in-law in 1954 when sales were about $250,000. From thereon Bill built the company to its 1995 sales volume of $257 million, thus cornering over 50% of the furniture business in Utah.

      FLIGHTSAFETY INTERNATIONAL This was introduced to Buffett by a longtime shareholder Richard Sercer, who is an aviation consultant and also was a shareholder at Flightsafety. He knew that Flightsaftey's 79 year old CEO was looking to sell the business. Thus Richard wrote to Salomon's Investment banker Bob Denham. Who further arranged a meeting between Buffett and Al on Sep-18, 1996.Deal was finalized and Berkshire bought Flightsafety for $1.5bn. Flightsafety was founded by Al Ueltschi who is considered Father of Flight training. He is enshrined in the National Aviation Hall of Fame at Dayton, OH. He started his career at Pan Am. Flighsafety's core competence are its simulators that are very capital intensive to manufacture. Each simulator can easily cost tens of millions of dollars. But Buffett was very positive about the huge moat the company had. Till 2010 the company has always dared well.

      KANSAS BANKER's SECURITY On Jan-26, 1996 Buffett was invited to a40th birthday party of his nephew's wife Jane Rogers. There Jane's dad Roy mentioned that he was in the company's directors meeting and said how Buffett had always admired it. Buffett casually mentioned to let him know when it was available for sale. On Feb-12 he got the letter from Roy that also had the company's financial statements. On Feb-13 Buffett offered $75million for the company. Before long, the deal was sealed ?so much for Buffett's investment bankers who in this case happened to be his nephew's wife.

      © 1996- The Buffett