Warren Buffett’s Berkshire Hathaway sold its Costco stake last quarter. Here are 3 reasons why that’s extremely surprising

warren buffet charlie munger

Summary List Placement
Warren Buffett’s Berkshire Hathaway sold its Costco position after investing more than 20 years ago, a filing revealed this week.
The billionaire investor’s company grew its stake in the big-box retailer from 355,000 shares worth $32 million in 1999, to 4.3 million shares worth $1.3 billion in June of this year.
The sale is a shock because Buffett famously invests for the long term, two of Berkshire’s directors sit on Costco’s board, and both Buffett and his business partner, Charlie Munger, have repeatedly praised the retailer.
“If once or twice in a lifetime you’re associated with such a business, you’re a very lucky person,” Munger said about Costco in 2011.

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Warren Buffett’s Berkshire Hathaway revealed this week that it dumped its stake in Costco last quarter, exiting an investment it made more than 20 years ago. The sale is surprising for several reasons. 

The investor’s company grew its position in the big-box retailer from 355,000 shares worth $32 million in December 1999, to 4.3 million shares worth $1.3 billion at the end of June this year. Costco’s stock price skyrocketed from less than $50 to north of $300 in that timespan, a roughly 500% increase.

Many investors would be tempted to cash out at that point, but Buffett has famously said his “favorite holding period is forever.” 

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The close ties between Berkshire and Costco add to the mystery. Charlie Munger – Buffett’s longtime business partner and Berkshire’s vice-chairman – has been a Costco director since 1997 and personally owned more than $60 million worth of its stock as of last month, regulatory filings show.

Susan Decker, another Berkshire director, also sits on Costco’s board, cementing the two companies’ close relationship. Moreover, Buffett and Munger have heaped praise on Costco many times over the years.

“Costco is an absolutely fabulous organization,” Buffett said at Berkshire’s annual shareholder meeting in 2000. “We should have owned a lot of Costco over the years. Charlie was for it, but I blew it.”

Munger shared some of his reasons for admiring the company – which sells products in bulk at cheap prices via hundreds 0f members-only warehouses – at Berkshire’s meeting in 2011.

He said: “Costco is a business that became the best in the world in its category, and it did it with an extreme meritocracy and an extreme ethical duty, self-imposed, to take all its cost advantages as fast as it could accumulate them and pass them on to the customers. And, of course, that created ferocious customer loyalty.”

“It’s been a wonderful business to watch,” Munger continued. “If once or twice in a lifetime you’re associated with such a business, you’re a very lucky person.”

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Source:: Businessinsider – Finance

      

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