Warren Buffett’s 3 Greatest Investments of All Time

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Berkshire Hathaway ( BRK.A 0.83% )( BRK.B 0.70% ) CEO Warren Buffett has a penchant for making money. Since becoming CEO in 1965, he has created more than $790 billion in value for shareholders (himself included), and has overseen an overall return on the company’s Class A (BRK.A) shares. company of 4,355,005%, until March 27, 2022.

While there are many reasons for the success of the Oracle of Omaha, they all really boil down to smart investments and acquisitions. The following three investments are arguably Buffett’s greatest of all time.

Warren Buffett, CEO of Berkshire Hathaway. Image source: The Motley Fool.

Best Nominal Dollar Yield: Apple

In terms of nominal dollar returns, there is no doubt that the kingpin of technology Apple (AAPL -0.67% ) take the crown.

According to Berkshire Hathaway’s 2021 annual letter to shareholders, Buffett’s company spent $31.089 billion to acquire 907,559,761 shares of Apple. For those of you keeping score at home, that works out to a base cost of $34.26 per share. But as of the March 25 close, Apple shares were changing hands at $174.72. This equates to a market value of approximately $158.6 billion and an unrealized gain totaling $127.5 billion.

Keep in mind that the unrealized gain above doesn’t take into account the nearly $800 million in dividend income Buffett’s company generates each year from owning more than 907 million shares of Apple, nor of the small percentage of Apple shares that Berkshire previously sold at a profit.

These incredible returns are primarily a function of Apple’s innovation. According to data from Counterpoint, Apple accounted for 56% of all smartphone sales in the United States during the fourth quarter. This figure was up from 40% in the third quarter of 2020. Since the introduction of 5G-enabled iPhones, the market share gap between Apple and Samsungthe number 2 smartphone share in the United States, rose 10 percentage points to 34.

Apple CEO Tim Cook is also overseeing a long-term shift that will focus the company’s attention on subscription services. A greater focus on services can reduce the revenue stream associated with product replacement cycles, as well as increase business margins over time.

Warren Buffett is also a big fan of Apple’s return of capital program. Apple has spent hundreds of billions of dollars to buy back its shares and has also increased its dividend several times. As long as the company continues to innovate and reward shareholders, I don’t believe we’ll see Buffett or his investment team shrink that huge stake.

An insurance agent places his hands protectively over paper cutouts of a house, car and family of four.

Image source: Getty Images.

Best return on an acquisition: GEICO

While Apple is Buffett’s biggest nominal dollar investment of all time, the insurance company GEICO is arguably Berkshire Hathaway’s biggest acquisition in history.

It all started in 1976, when Oracle of Omaha invested $23.5 million in GEICO ($4.1 million in common stock and the rest in convertible preferred stock). With additional investments made in subsequent years, Berkshire owned one-third of the company, while having invested around $46 million by 1980.

After a steady stream of stock buybacks throughout the 1980s and the first half of the 1990s, Berkshire’s stake in GEICO grew to around 50%. In 1996, Buffett’s company acquired the 49% stake it didn’t already own for $2.3 billion. A total of nearly $2.35 billion was spent investing in and ultimately acquiring GEICO between 1976 and 1996.

How much is GEICO worth today? It really depends on inexact science. As my fellow fool Billy Duberstein pointed out in 2019, Berkshire acquired GEICO for 15.2 times pre-tax earnings and a price-to-sales ratio of 1.54. If we average GEICO’s pre-tax profits and sales between 2019 and 2021 (I’m averaging these three years due to the impact of COVID-19), we arrive at a valuation of $31.4 billion. dollars (based on the earnings multiple of 15.2X) for $55.6 billion (based on a price/sales multiple of 1.54). This equates to a gain over total cost of between 1,236% and 2,266%. In nominal dollars, we are talking about an increase in value of $29 billion to $53 billion.

More than 45 years later, GEICO still checks all the boxes Buffett would look for in an insurance stock. It has a well-known brand name, and most importantly, it had no problem passing on premium price increases, if needed. While his pretax profits have been all over the place for the past two years due to COVID-19, he continues to be a profitable and fundamental mainstay in Buffett’s eyes.

Employees using tablets and laptops to analyze financial metrics during a meeting in a conference room.

Image source: Getty Images.

Biggest percentage gain of an existing investment: Moody’s

Oracle Omaha’s third great investment of all time, at least in terms of percentage gain for an investment that hasn’t been fully vested, has to be the rating agency Moody’s (AGC -0.38% ).

Moody’s has been a continuing holding company of Berkshire Hathaway since its spin-off from Dun & Bradstreet in 2000. Based on Berkshire’s annual shareholder letter, the company paid $248 million to acquire 24,669,778 shares of Moody’s. This equates to a base cost of $10.05 per share. But with Moody’s closing last week at $330.51, Berkshire’s initial investment was up almost 3,200%!

But there’s a catch: I’m not including the profits Berkshire Hathaway has made by reducing its stake in Moody’s over the past 21 years, and I haven’t accounted for the dividends Moody’s has paid out over that time. . If we include dividends paid since Moody’s debuted as a public company in October 2000, Berkshire Hathaway’s total return on its remaining Moody’s shares is very close to 4,000%!

There are two main reasons why Moody’s has been such an incredible investment for Warren Buffett. For starters, a decade of falling interest rates prompted companies to borrow to hire, acquire and innovate. A sharp rise in corporate debt issuance, especially as lending rates hit historic lows over the past two years, has ratings agency Moody’s kept busy.

Another key catalyst for Moody’s has been its rapidly growing analytics segment. This division is responsible for helping companies assess economic and credit risk, as well as maintaining regulatory compliance. You can imagine how helpful Moody’s services were during a pandemic, the Sino-American trade war and the Great Recession between 2007 and 2009.

Even with the Federal Reserve raising interest rates, Moody’s two major operating segments are expected to continue to generate mid- to high-single digit sales growth.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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