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Warren Buffett initially invested $600m of Berkshire Hathaway’s cash in Gillette’s preferred stock giving a 8.75% yield way back in 1989. It wasn’t until 2005, after the preferreds had been converted to Gillette common stock and then to shares in P&G, that he committed any more money, when he topped up his P&G holding with another $430m of shares.
And that’s it, that’s all he put into the investment.
But over the last three decades that holding has returned over $2bn in dividends (and still counting) plus £2.95bn from selling P&G shares plus total ownership of Duracell which has $1.8bn of cash/investments and a strong operating business
A summary of the money in and money out
| Date | Investment made | Returns to Berkshire | ||
| July 20 1989 | Preferred stock $600m | |||
| July 1989 – April 1991 | Gillette preferred dividends £89m ($45m after tax) | |||
| April 1991 – September 2005 | Gillette common stock dividends: over $600m before tax | |||
| 2005 | Bought more shares in P&G paying out $340m | |||
| 2007 | Bought more shares in P&G paying out $90m | |||
| October 2005 – February 2016 | P&G dividends: over $1.4bn | |||
| 2008 – 2012 | From sale of P&G shares: over $2.95bn | |||
| February 2016 | Received $4.2bn shares in Duracell | |||
| Total | $1.03bn | $9.26bn (approx.) before tax deduction |
Learning points from the Gillette – P&G – Duracell case study
- An investor able to inject large sums into a company and do it in a non-threatening way can get a bargain from the managers. Following the generous return gained from the Gillette purchase in 1989 Buffett and Munger assisted other companies restore balance sheet strength without imposing onerous conditions on the directors, e.g. Goldman Sachs and General Electric following the 2008 financial crisis. Smaller investors do not have this power, but we can try to be understanding and supportive of directors rather than aggressive and critical. That way, we might obtain, not only more pleasant engagement, but more information, and greater likelihood of directors listening to our thoughts on the company.
- Occasionally a scarcity of re
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