Investing guru Warren Buffett may be a living legend, but he's as human as any of us and has admitted to making mistakes.
His holding company Berkshire Hathaway (BRK.A -0.33%) (BRK.B -0.20%) sold off its shares of retail giant Costco Wholesale (COST -0.54%) in the 2020 third quarter, about a year and a half ago. Costco's share price has boomed since then, gaining around 80%.
Does that mean the Oracle of Omaha made a mistake? It's not that simple.
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How Costco fits Buffett's investing thesis
Warren Buffett is known for investing in undervalued, easy-to-understand businesses with great fundamentals. He originally bought Costco shares in 1998, when they cost around $28 (adjusted for stock splits) and were trading at a price-to-earnings (P/E) ratio of around 30.
Clearly, at the time, the shares were undervalued. When Berkshire sold its Costco stock in 2020,it had gained nearly 900% over the 20 years of ownership.
Buffett didn't explain why he sold Costco at the time, and he doesn't typically offer explanations for his investing decisions. Over the years, however, he has extolled Costco as a company several times. At the 2018 Berkshire Hathaway annual meeting, he said: "Costco has an enormous appeal to its constituency. They...surprise and delight their customers. And there is nothing like that in business. You have delighted customers, you're a long way home." Buffett's right-hand man Charlie Munger also sits on Costco's board and personally owns more than $90 million worth of Costco stock.
There are several reasons why he might have sold the stock. Its price has increased at a faster rate than its earnings, and its P/E ratio has steadily increased to 45, where it is today. Costco stock may be worth some premium, but Buffett may have decided that at that price, it's no longer undervalued relative to its future earnings or cash flow generation.
He may also have simply decided that other investments offered more potential at that point. During the same quarter that he and his investing managers exited the Costco position, they took positions in six new stocks, mostly in the biotech category.
While Buffett hasn't made it known that he has any regrets about Costco, he has said he regrets selling some of the company's Apple stock at the end of 2020. Apple is Berkshire Hathaway's biggest holding, worth $120 billion, and he said the sale was probably a mistake.
Should you buy Costco?
What does that mean for the individual investor? Costco has been posting outstanding performance since the pandemic started. It has continued to keep it up even as people have resumed many pre-pandemic behaviors, and other companies have seen their inflated growth begin to decelerate. In the second fiscal quarter (ended Feb. 13), sales rose 16% year over year and earnings per share increased from $2.14 to $2.92.
Costco has several competitive advantages, such as its fee-based model that makes for a superlative cash flow system and razor-thin margins that encourage high volume. It performs extraordinarily well under adverse circ*mstances, which is why it posted higher-than-normal growth when the pandemic started, and is still posting double-digit growth in this inflationary environment.
Its valuation has increased as the stock price has grown, and investors are questioning whether it's worth the premium at this price. That might mean there could be some pullback in the near future, but Costco stock has a lot to offer long-term, and individual investors should consider having it in their portfolios.
Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway (B shares), and Costco Wholesale. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
FAQs
“Price is what you pay, value is what you get.” This famous Buffett quote strikes at the heart of the “value investor” approach and reveals the secret of how Buffett made his fortune.
Why didn't Warren Buffet split the stock? ›
Berkshire Hathaway Chairman and CEO Warren Buffett has never allowed a stock split of the company's A shares, despite their high trading prices. Buffett believes that splitting the stock would go against his strategy and that the high price tag attracts like-minded investors seeking long-term gains in intrinsic value.
How much of Costco does Warren Buffet own? ›
In 2020, Buffett sold out of his entire Costco Wholesale (COST -0.35%) position.
What did Warren Buffett say about the intelligent investor? ›
This book will not teach you how to beat the market. However, it will teach you how to reduce risk, protect your capital from loss and reliably generate sustainable returns over the long run. Warren Buffett calls the Intelligent Investor ""by far the best book on investing ever written. ""
What is the most famous line of all time? ›
The list
| Rank | Quotation | Year |
|---|
| 1 | "Frankly, my dear, I don't give a damn." | 1939 |
| 2 | "I'm gonna make him an offer he can't refuse." | 1972 |
| 3 | "You don't understand! I coulda had class. I coulda been a contender. I could've been somebody, instead of a bum, which is what I am." | 1954 |
| 4 | "Toto, I've a feeling we're not in Kansas anymore." | 1939 |
61 more rowsRule 1: Never lose money.
This is considered by many to be Buffett's most important rule and is the foundation of his investment philosophy.
What stocks will split in 2023? ›
Stock splits in 2023
Thus far in 2023, the only high-profile stock splits are from Monster Beverage Corp., PACCAR Inc., and Churchill Downs. The energy drink leader announced the stock split during its fourth-quarter 2022 financial update on Feb. 28, 2023.
How much of Coca-Cola stock does Warren Buffet own? ›
Berkshire Hathaway owns over 9% of Coca-Cola's shares.
What is the most expensive stock right now? ›
If you wonder which company has the highest share price in the world, here is the answer. Berkshire Hathaway, the conglomerate headed by legendary investor Warren Buffett, has the most expensive stock in the world, with shares trading at over $400,000 each.
How much of Dairy Queen does Warren Buffet own? ›
Operating subsidiaries
| Company | Sector | Ownership % |
|---|
| Dairy Queen | Food and Beverage | 99% |
| Duracell | Household Products | 100% |
| Ebby Halliday Companies | Real Estate | 100% |
| Fechheimer Brothers Company | Clothing | 100% |
67 more rowsThere's one key difference for Buffett now, though: Walmart isn't in Berkshire's portfolio. However, New England Asset Management, a subsidiary of Berkshire, does own shares of the discount retailer.
Why did Buffett dump Costco stock? ›
He simply saw more growth potential in other equities. And clearly the profit was worth banking. As much as Buffett loves Costco, his partner Munger loves it even more.
Who is the smartest investor in the world? ›
Warren Buffett is often considered the world's best investor of modern times. Buffett started investing at a young age, and was influenced by Benjamin Graham's value investing philosophy.
How high is Warren Buffett IQ? ›
It is said that Buffet himself apparently has an IQ over 150 (160 is considered a genius), the influential investor doesn't believe it's the sole reason for his success.
Who is the father of stock market? ›
Benjamin Graham, dubbed the "father of value investing," is known for his investing style, literary contributions on investing, and research.
What is the best short quote of all time? ›
Short motivational quotes
- “Just one small positive thought in the morning can change your whole day.” — ...
- “Opportunities don't happen, you create them.” — ...
- “Love your family, work super hard, live your passion.” — ...
- “It is never too late to be what you might have been.” —
If you're walking down the right path and you're willing to keep walking, eventually you'll make progress.
What is the most inspirational quote ever? ›
What is the most inspiring quote ever?
- “Our greatest glory is not in never falling, but in rising every time we fall” – Confucius.
- “Magic is believing in yourself. ...
- “All our dreams can come true, if we have the courage to pursue them” – Walt Disney.
- “The real test is not whether you avoid this failure…
The relationship can be referred to as the “Rule of 21,” which says that the sum of the P/E ratio and CPI inflation should equal 21. It's not a perfect relationship, but holds true generally.
What are Buffett's four rules of investing? ›
Here's Buffett's take on the five basic rules of investing.
- Never lose money. ...
- Never invest in businesses you cannot understand. ...
- Our favorite holding period is forever. ...
- Never invest with borrowed money. ...
- Be fearful when others are greedy.
The Rule of 25 is a potentially useful way for you to get a sense of how much money you will need to save to have a financially secure retirement. The rule states that if you save 25 times of what you want your annual salary to be in retirement, that you can stretch that money for 30 years.
What is best stock to buy in 2023? ›
10 of the Best Stocks to Buy for 2023
| Stock | YTD Total Returns Through June 6 |
|---|
| Walt Disney Co. (DIS) | 6.1% |
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| Grupo Aeroportuario del Sureste SAB de CV (ASR) | 26.1% |
7 more rows4 days ago
Upcoming and Recent Stock Splits
| Stock | Exchange | Ex-Date |
|---|
| DPST | AMEX | 2023-06-05 |
| ANGN | NASDAQ | 2023-06-02 |
| TRKA | NASDAQ | 2023-06-01 |
| VSTM | NASDAQ | 2023-06-01 |
69 more rowsLooking ahead to second-quarter reports, analysts are calling for S&P 500 earnings to fall 6.4% compared to a year ago. Fortunately, analysts are projecting S&P 500 earnings growth will rebound back into positive territory in the second half of 2023.
What stock did Warren Buffett just buy? ›
Warren Buffett buys Capital One, despite banking woes
Berkshire Hathaway's latest 13F filing showed three new positions during the first quarter of 2023: Diageo plc (DEO) - Get Free Report, Vitesse Energy VTS, and Capital One (COF) - Get Free Report. Diageo isn't really a new position.
What would happen if I invested $1000 in co*ke 10 years ago? ›
The third section will help you know the total dividend earned on a 1000$ investment in KO over 10 years. By investing 1000$ in KO 10 years ago, you would have earned a total dividend of 428$ (until 2023-04-18). For more detailed history of KO stock dividend report.
What stock is Warren Buffett buying? ›
Paramount Global (PARA) and Louisiana Pacific (LPX) were new positions in Berkshire's portfolio last year. Buffett first bought Paramount PARA +0.1% in the first quarter of 2022 and Louisiana Pacific in the third quarter of 2022. He's owned Apple since 2016.
What is the most a stock has gained in one day? ›
The global record for a daily gain in market capitalization was set by PetroChina Co., which added $597 billion on one day in November 2007.
What is the most expensive stock in world history? ›
Top Companies by Stock Price
The most expensive publicly traded share of all time is Warren Buffett's Berkshire Hathaway (BRK.
Does Warren Buffett own Home Depot stock? ›
Berkshire Hathaway's Home Depot Stake
The first Home Depot trade was made in Q2 2005. Since then Warren Buffett bought shares two more times and sold shares on five occasions.
He drinks five co*kes a day and eats McDonald's for breakfast every morning. Warren Buffett says he'd give up an extra year of his life to be able to eat anything he wants. Famously a fan of junk food, the 92-year-old has said he drinks 5 cans of co*ke a day and eats McDonald's daily.
What candy company does Warren Buffett own? ›
Berkshire Hathaway purchased See's Candies in 1972. Born in Omaha, Nebraska in 1930, Warren Buffett has been dubbed the most successful investor of the 20th century.
Who is Walmart's biggest shareholder? ›
Jim Walton, Alice Walton, and Rob Walton are the top three individual shareholders of Walmart. Walmart's largest institutional investors include the John T. Walton Estate Trust, Vanguard Group, and BlackRock.
Does Buffett own any banks? ›
Buffett's First Bank Purchase
He never bought an entire bank again, but made an investment into American Express (AXP) - Get Free Report in 1962. Buffett is currently the company's largest shareholder and owns 20% of its shares, according to FactSet data. His stake was valued at $22 billion at the end of 2022.
Does Warren Buffett Own Amazon? ›
Berkshire Hathaway's Amazon.com Stake
Warren Buffett acquired 10.6 Million Amazon.com shares worth $1.34 Billion. That's 0.39% of their equity portfolio (20th largest holding). Warren Buffett started to build up the position in Amazon.com in Q1 2019 and continued to invest until Q2 2019.
Who owns the most Costco stock? ›
Looking at our data, we can see that the largest shareholder is The Vanguard Group, Inc. with 8.9% of shares outstanding. BlackRock, Inc. is the second largest shareholder owning 6.8% of common stock, and State Street Global Advisors, Inc. holds about 4.3% of the company stock.
Does Buffett own Costco? ›
Berkshire Hathaway exited its stake in Costco in late 2020 after selling 4.3 million shares, but Munger has retained a personal stake in the company. As of Nov.
Why are Costco stocks dropping? ›
The stock market correction, high inflation, supply chain challenges, and a slowing economy have pushed the stock down 20% from its high.
Who is the best stock picker of all time? ›
Warren Buffett is widely considered the single best investor of all time, and that's simply because his numbers are so otherworldly. Since taking the helm at Berkshire Hathaway Inc. (ticker: BRK. A, BRK.B)
Who is the most successful stock investor of all time? ›
1. Warren Buffett. Warren Buffett is considered by many to be the most successful investor ever; he has a net worth of over $80 billion and for decades has been among the wealthiest people in the world. He began investing at an early age and is now known as “The Oracle of Omaha” for his unparalleled financial acumen.
Here are the best low-risk investments in June 2023:
Series I savings bonds. Short-term certificates of deposit. Money market funds. Treasury bills, notes, bonds and TIPS.
What is Jeff Bezos IQ? ›
There are several successful entrepreneurs who are known for their high IQ scores, such as: Jeff Bezos: The founder of Amazon, Bezos has an IQ estimated to be around 145.
What is Elon Musk's IQ? ›
Let's try to understand Elon's level of IQ now that we know the obvious answer to that question. Elon Musk has a 155 IQ, which is regarded as being quite high. He is therefore more creative and quick to find solutions to issues than most people.
What is Warren Buffett's golden rule? ›
1 – Never lose money. Let's kick it off with some timeless advice from legendary investor Warren Buffett, who said “Rule No. 1 is never lose money.
What is a famous quote from the intelligent investor? ›
The intelligent investor is a realist who sells to optimists and buys from pessimists. Those who do not remember the past are condemned to repeat it. An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.
What is a famous quote for investing? ›
“Invest for the long haul. Don't get too greedy and don't get too scared.” “The best way to measure your investing success is not by whether you're beating the market but by whether you've put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”
