Berkshire Hathaway’s secret sauce

In his FY2022 letter to Berkshire Hathaway’s shareholders dated February 25, 2023, legendary value investor Warren Buffett shares the secret sauce of his company.

“In August 1994 – yes, 1994 – Berkshire completed its seven-year purchase of the 400
million shares of Coca-Cola we now own. The total cost was $1.3 billion – then a very meaningful
sum at Berkshire,” said Warren Buffett, chairman of Berkshire Hathaway, the best known student of value investor founder Benjamin Graham.

“The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million,” said Warren Buffett. “Growth occurred every year, just as certain as birthdays. All Charlie (Munger) and I were required to do was cash Coke’s quarterly dividend checks. We expect that those checks are highly likely to grow.”

Warren Buffett, the sage of Omaha, went on to say that American Express is much the same story. “Berkshire’s purchases of Amex were essentially completed in 1995 and, coincidentally, also cost $1.3 billion. Annual dividends received from this investment have grown from $41 million to $302 million. Those checks, too, seem highly likely to increase.

“These dividend gains, though pleasing, are far from spectacular. But they bring with them
important gains in stock prices. At yearend, our Coke investment was valued at $25 billion while
Amex was recorded at $22 billion. Each holding now accounts for roughly 5% of Berkshire’s net
worth, akin to its weighting long ago.”

So what is the lesson for investors?

“The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well,” said Warren Buffett.