Warren Buffett's Historical Investments (Part 5)

Warren Buffett's Historical Investments (Part 5)


Geico: This was acquired by Berkshire. Buffett's initial big investment was made as the company was on the verge of insolvency. Buffett decided to ride to the rescue, believing that the company's durable competitive advantage was still intact. He was right and watched his $45 million investment grow over the next 15 years to more than $2.3 billion. That equates to a compounding annual rate of return of 29.9% - the stuff investment legends are made of.

Price bought: $45 million
Price 15 years later: $2.3 billion
CAGR: 29.9%



General Electric: Originally GE had a lockdownon the electrification of the planet. For most people electricity is a fact of life, but a mere one hundred years ago it wasn't. One company provided the knowledge and equipment to wire the planet, and that company was GE. And it made a fortune. Today GE is one of the largest and most diversified industrial giants on earth. With this position, it has the financial power to play in any game it wants.

Buffett has long admired this company - it is a Buffett Foundation holding - but has never been able to buy a big piece at a price he thinks is attractive. The ROE for the last 10 years has fluctuated between 18% and 23% (which is great) and ROTC between 16% and 25%. The per share earnings have been growing at an annual compounding rate of 11.8%, which is also electrifying. GE carries only $400 million in long-term debt against $10 billion in earnings. You need a real good recession to buy this one at a fair price. During the 1999 bubble it traded at a PE of 36, which is no bargain. Take a strong look anytime the PE drops below 15, where it traded in the 80s and early 90s.

ROE: 18% - 23%
ROTC: 16% - 25%
Per share earnings annual growth rate: 11.8%
Long-term Debt: $400 million
Earnings: $10 billion
PE: 36 (during the bubble in 1999) Buy at PE below 15


General Foods Corp: In 1979, Buffett began buying up the stock of a food company called General Foods, paying an average price of $37 a share for approximately 4 million shares. Buffett saw strong earnings, $5.12 a share, which had been growing at an average annual rate of 8.7%.
This gave him an initial return of 13.8%, which he could argue was going to grow at 8.7% a year. Then, in 1985, the Philip Morris Company saw the value of General Foods' many brand-name products, which created a strong and expanding earnings base, and bought all of Buffet's General Foods stock for $120 a share in a tender offer for the entire company. This gave Buffett a pretax annual compounding return on his investment of approximately 21%. That's right, a pretax annual compounding return of 21%. A nice number in anybody's book.

Price bought: $37 a share (1979)
Earnings: $5.12 a share
Per share earnings annual growth rate: 8.7%
Initial return: 13.8%
Price sold: $120 (1985, tender offer by Philip Morris Company)
CAGR: 21% (pretax return)


Gillette: Razor blades and batteries wear out quickly, and people have to buy more of them if they want to be clean shaven or to keep their portable electrical devices humming. Gillette knows how to make money. This is a Berkshire holding. For the last 10 years the ROE has been above 30% and the ROTC above 20%. Per share earnings over the last 10 years have grown at an annual rate of 14%. During the 1999 bubble it traded at a PE of 40, which is way too high for this company. If you can get it at a PE below 15, you can make some money.

ROE: > 30 % (the last 10 years)
ROTC: > 20% (the last 10 years)
Per share earnings annual growth rate: 14% (the last 10 years)
PE: 40 (during the 1999 bubble). Fair price PE < 15



Related topics:
Warren Buffett's Historical Investments (Part 1)
Warren Buffett's Historical Investments (Part 2)
Warren Buffett's Historical Investments (Part 3)
Warren Buffett's Historical Investments (Part 4)
Warren Buffett's Historical Investments (Part 5)
Warren Buffett's Historical Investments (Part 6)
Warren Buffett's Historical Investments (Part 7)
Warren Buffett's Historical Investments (Part 8)
Warren Buffett's Historical Investments (Part 9)