In his 2023 Berkshire Hathaway Annual Letter, Warren Buffett discusses Berkshire Hathaway’s long-term investments in Coca-Cola and American Express, which have been held for over two decades. While these positions are smaller compared to Apple, they remain significant assets.
Both companies, founded in the 19th century, overcame past mismanagement and expanded globally. Buffett emphasizes the importance of patience with great businesses, noting that Berkshire made no trades in 2023, yet benefitted from earnings and dividend growth.
He also underscores the value of share repurchases, which increased shareholder ownership. Buffett’s key lesson: stick with wonderful businesses, as their success can outweigh other inevitable investment mistakes.
Here’s an excerpt from the letter:
Last year I mentioned two of Berkshire’s long-duration partial-ownership positions — Coca-Cola and American Express. These are not huge commitments like our Apple position. Each only accounts for 4-5% of Berkshire’s GAAP net worth. But they are meaningful assets and also illustrate our thought processes.
American Express began operations in 1850, and Coca-Cola was launched in an Atlanta drug store in 1886. (Berkshire is not big on newcomers.) Both companies tried expanding into unrelated areas over the years and both found little success in these attempts. In the past — but definitely not now — both were even mismanaged.
But each was hugely successful in its base business, reshaped here and there as conditions called for. And, crucially, their products “traveled.” Both Coke and AMEX became recognizable names worldwide as did their core products, and the consumption of liquids and the need for unquestioned financial trust are timeless essentials of our world.
During 2023, we did not buy or sell a share of either AMEX or Coke — extending our own Rip Van Winkle slumber that has now lasted well over two decades. Both companies again rewarded our inaction last year by increasing their earnings and dividends. Indeed, our share of AMEX earnings in 2023 considerably exceeded the $1.3 billion cost of our long-ago purchase.
Both AMEX and Coke will almost certainly increase their dividends in 2024 — about 16% in the case of AMEX — and we will most certainly leave our holdings untouched throughout the year. Could I create a better worldwide business than these two enjoy? As Bertie will tell you: “No way.”
Though Berkshire did not purchase shares of either company in 2023, your indirect ownership of both Coke and AMEX increased a bit last year because of share repurchases we made at Berkshire. Such repurchases work to increase your participation in every asset that Berkshire owns. To this obvious but often overlooked truth, I add my usual caveat: All stock repurchases should be price-dependent. What is sensible at a discount to business-value becomes stupid if done at a premium.
The lesson from Coke and AMEX? When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable.
You can read the entire letter here:
2023 Berkshire Hathaway Annual Letter
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
