Warren Buffett’s Berkshire Hathaway sold its $ 1.3 billion stake in Costco in the most recent quarter. Here’s why that’s surprising

Warren Buffett and Charlie Munger

  • Warren Buffett’s Berkshire Hathaway sold its Costco location after investing more than 20 years ago, according to a file disclosure this week.
  • The billionaire investor company has grown its stake in the large retailer from 355,000 shares worth $ 32 million in 1999 to 4.3 million shares worth $ 1.3 billion in June this year.
  • The sale was a shock because Buffett had a reputation for long-term investing, with two Berkshire directors on the Costco Board of Directors, and both Buffett and his business partner, Charlie Munger, have praised the retailer time and time again.
  • “If you’ve been linked once or twice in a lifetime to such a business, you are a very lucky person,” Munger said of Costco in 2011.
  • Visit Business Insider’s homepage for more stories.

Warren Buffett Berkshire Hathaway Revealed this week Which gave up its stake in it Costco Last quarter, exit from an investment it made more than 20 years ago. The sale is sudden for a number of reasons.

The Investor Company has grown its position in large retail stores 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 from under $ 50 to $ 300 north in that time period, an increase of nearly 500%.

Many investors may be tempted to cash out at this point, but Buffett famously said his “preferred retention period is forever”.

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The close relationships between Berkshire and Costco add to the mystery. Charlie Munger – Buffett’s longtime business partner and vice president of Berkshire – has been a director of Costco since 1997 and personally owned more than $ 60 million of its stock as of last month. Regulatory filings appear.

Susan Decker, another manager at Berkshire, is on the board of directors for Costco, which has strengthened the close relationship between the two companies. Furthermore, Buffett and Munger have won praise for Costco many times over the years.

“Costco is a very impressive organization,” Buffett said at the annual shareholders meeting in Berkshire in 2000. “We should have had a lot of Costco over the years. Charlie was in support of it, but I blew it.”

Munger shared some of his reasons for his admiration for the company – which sells products in bulk at cheap rates across hundreds of member-only warehouses – at a Berkshire meeting in 2011.

He said, “Costco is a company that has become the best in the world in its class, and has done it with great merit and an extreme ethical duty, imposed on itself, to bear all its cost advantages as quickly as it can accumulate” and pass it on to customers. This of course creates fierce customer loyalty. “

“It was amazing work to watch,” Munger continued. “If you’ve been linked once or twice in a lifetime to such a business, then you are a very lucky person.”

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Buffett followed Munger’s comments by mocking his Costco partner’s obsession with a fairy tale, which can be found entirely in CNBC Warren Buffett Archive.

“Charlie and I were on a plane that was recently hijacked,” he said. “The kidnappers chose us as dirty capitalists who really had to hang them.”

“But they were a little upset about that,” Buffett continued. “They didn’t really have anything against us, so they said all of us would have one request before they shot us, and then they turned to Charlie and said, ‘What do you want as your request?”

In Buffett’s novel, Munger replied, “I’d like to give my speech once again on Costco’s virtues, with illustrations.”

The kidnapper replied, “Well, that sounds very reasonable to me.” “What do you want, Mr. Buffett?”

Buffett quipped, “Shoot me first.”

Unexpected exit

Buffett and Munger Costco recently showered praise at the annual meeting of 2018. “I love everything in this business,” Munger said, citing the company’s cheap real estate, competitive position, and excellent employees.

Buffett said, “Costco has tremendous appeal to its constituencies and it surprises and delights its customers.” “There is no such thing at work. If you have happy clients, you are a long way home.”

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The Berkshire Corporation’s status at Costco was not significant in terms of size: Buffett only owned about 1% of the business in June, and the acquisition accounted for less than 1% of its total portfolio value.

Nevertheless, Buffett and Munger’s repeated praise of Costco for more than two decades, the retailer’s deep ties to Berkshire, and Buffett’s historic aversion to selling high-quality collectibles make the sale an undeniable surprise.

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