Warren Buffett: Our ‘Clean Sweep’ Approach To Business & Investing

Johnny HopkinsWarren BuffettLeave a Comment

In his 1998 Berkshire Hathaway Letter, Warren Buffett discussed their ‘clean sweep’ approach to business and investing. Here’s an excerpt from the letter:

During the year, we slightly increased our holdings in American Express, one of our three largest commitments, and left the other two unchanged.

However, we trimmed or substantially cut many of our smaller positions. Here, I need to make a confession (ugh): The portfolio actions I took in 1998 actually decreased our gain for the year.

In particular, my decision to sell McDonald’s was a very big mistake. Overall, you would have been better off last year if I had regularly snuck off to the movies during market hours.

At yearend, we held more than $15 billion in cash equivalents (including high-grade securities due in less than one year). Cash never makes us happy.

But it’s better to have the money burning a hole in Berkshire’s pocket than resting comfortably in someone else’s.

Charlie and I will continue our search for large equity investments or, better yet, a really major business acquisition that would absorb our liquid assets. Currently, however, we see nothing on the horizon.

Once we knew that the General Re merger would definitely take place, we asked the company to dispose of the equities that it held. (As mentioned earlier, we do not manage the Cologne Re portfolio, which includes many equities.)

General Re subsequently eliminated its positions in about 250 common stocks, incurring $935 million of taxes in the process. This “clean sweep” approach reflects a basic principle that Charlie and I employ in business and investing: We don’t back into decisions.

You can read the entire letter here:

Berkshire Hathaway Letter 1998

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