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- (Fred Lum/The Globe and Mail)
- (Fred Lum/The Globe and Mail)

EQUITIES

A look inside the investments driving America’s highest-priced stock Add to ...

Warren Buffett’s good old-fashioned stock-picking has a been a big part of Berkshire Hathaway’s path to $200,000 (U.S.) per share.

The company’s $100-billion-plus portfolio of publicly traded securities makes up about a third of its value. As for the rest, the earnings from giant insurers, a wide portfolio of energy companies and manufacturers, and one of the United States’ largest railroads have helped Berkshire cross a price barrier no company has ever crossed before.

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Alas, the individual investor can’t get in on its fully owned subsidiaries, such as GEICO, Burlington Northern Santa Fe, MidAmerican Energy Co. or Nebraska Furniture Mart, except to the extent a share of Berkshire provides a small slice of their worth. (Berkshire also has a “baby” Class B share that trades for about $135, giving investors … an even smaller piece of the pie.)

So that’s why there’s so much attention on Berkshire’s stock portfolio, even as it changes modestly from quarter to quarter, year to year. Mr. Buffett’s list of picks is a special kind of validation for a stock, a seal of approval from one of the greatest investors of all time. If it’s good enough for Warren, it’s certainly good enough for me! (Setting aside all sorts of issues of risk tolerance and investment horizon, of course.)

In that spirit, we thought we’d take a look at some of the investments that helped make Berkshire a $200,000 stock, from the old standbys to the new arrivals, from the shares seemingly falling out of favour to the ones Berkshire is buying now, including a well-known Canadian name. (The holdings are as of June 30, per a report Berkshire filed with U.S. securities regulators late Thursday.)

Through it all, keep in mind this maxim, which Mr. Buffett first shared with his stockholders in his 1989 chairman’s letter: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

The mainstays

Three of Berkshire’s four biggest positions have been part of the portfolio for at least a quarter-century.

American Express Co. ($14.4-billion at June 30) dates back to 1964 and the Buffett Partnership Ltd.’s biggest-ever investment, when it scooped up 5 per cent of the company for $13-million after the Salad-Oil Scandal of 1963 that saddled American Express with bad loans and crushed its stock price.

Berkshire began buying the stock of Coca-Cola Co. ($16.9-billion at June 30) in 1988.

Its largest holding is now Wells Fargo Corp. at $24.4-billion as of June 30. Berkshire first bought in in 1989 at split-adjusted prices of less than $2 per share (versus Friday’s close of $50.21). While Berkshire hasn’t added to its American Express and Coca-Cola stakes, it bought Wells Fargo actively through the end of 2013.

As a corollary to Mr. Buffett’s “wonderful company” principle, he also recently told stockholders in a letter that “we much prefer owning a non-controlling but substantial portion of a wonderful company to owning 100 per cent of a so-so business; it’s better to have a partial interest in the Hope diamond than to own all of a rhinestone.”

In Canada

In the second quarter, Berkshire trimmed a number of its energy holdings, including ConocoPhillips, National Oilwell Varco Inc. and Phillips 66. But it increased its position in Suncor Energy Inc. by more than 25 per cent, buying almost 3.5 million shares. Berkshire owned almost 16.5 million shares, worth just over $700-million, at June 30. The holding is a little more than 1 per cent of Suncor’s outstanding shares and less than 1 per cent of Berkshire’s portfolio, which may explain why Suncor hasn’t yet made it into one of Mr. Buffett’s chairman’s letters, much less been compared to the Hope diamond.

Cashing out

Mr. Buffett is known as a long-term investor, but sometimes he does exit holdings. In addition to the energy companies mentioned above, Berkshire trimmed its positions in DirecTV, as well as Liberty Media Corp. and Starz, two companies affiliated with cable magnate John Malone that have posted impressive gains; and Precision Castparts Corp., an industrial components maker that hit a 52-week high in the June quarter.

The newest arrival

Mr. Buffett famously eschewed technology stocks during the first Internet bubble. So it came as a bit of a shock when he disclosed in November, 2011, that he’d spent $10.7-billion on 64 million shares of International Business Machines Corp., an average price just under $170 per share. He’s added six million shares since, including 1.8 million in the quarter that ended in June. The position is worth $12.7-billion now, making it one of Berkshire’s four biggest holdings.

This one, however, may not promise the immense gains Berkshire has seen with the other three top holdings. IBM is no higher than it was at the time of Mr. Buffett’s disclosure, nearly three years ago. While IBM bulls see a company actively adapting to the new world of computing and creating shareholder value through stock buybacks, skeptics see a company that has shockingly lost big-ticket government contracts to Amazon Inc.

The newest theme

Much like technology, telecommunications hasn’t traditionally been a big part of the Berkshire portfolio. That may be changing. The company bought into Verizon Corp. in 2014’s first quarter and added to its position by more than a third in the second. It owned more than $700-million in Verizon stock at June 30.

Berkshire also initiated a position in regional U.S. cable company Charter Communications, buying 2.3 million shares worth $365-million at quarter end. It increased its share position in international cable concern Liberty Global PLC by 17 per cent to 17.2 million shares worth just under $750-million at June 30.

Globe app users click here for a Berkshire Hathaway infographic

The author owns Berkshire Hathaway and Wells Fargo stock and also contributes to a Wells Fargo magazine for its clients.

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