Warren Buffett is widely considered to be the best investor of all time, and for good reason. Since he took control of Berkshire Hathaway, the company has generated annualized returns of nearly double those of the S&P 500, mainly on Buffett's sound ability to make great investment deals.
With that in mind, here are eight examples of investments, acquisitions, and other deals that Warren Buffett has made over the years that have worked out especially well.
In the aftermath of the financial crisis, Buffett decided to invest $5 billion into investment banking giant Goldman Sachs. a move that Buffett referred to as a "bet on brains."
Buffett received $5 billion in Goldman Sachs preferred stock, as well as warrants to buy 43.5 million shares of the bank's common stock for $115 anytime before October 2013. Goldman ultimately ended up buying back the preferred stock for $5.64 billion and receiving over 13 million shares of Goldman, essentially for free -- the value of the difference between the stock's then-current price and strike price of Buffett's warrants.
In 2011, Buffett decided to purchase $5 billion worth of Bank of America preferred stock with a 6% dividend, which came with a nice little sweetener. Buffett also negotiated the right to buy 700 million shares of the bank's common stock at any time before September 2021 for just $7.14 per share. At the time, the warrants were technically worthless -- the bank's stock traded for less than this amount.
However, fast-forward to mid-2017 and the bank's share price had more than tripled. Not only that, but Bank of America's dividend had increased to more than Berkshire was receiving from its preferred stock. So Buffett used his warrants to exchange his preferred stock for 700 million shares, becoming Bank of America's largest shareholder. As of this writing, the investment has resulted in a gain of more than $14.2 billion in just over six years.
Investors who haven't followed Buffett for more than a couple of decades are often surprised to learn that government-backed mortgage agency Freddie Mac was once a major Buffett stock.
Buffett bought shares of Freddie Mac in 1988 for $4 per share and enjoyed a total return of more than 1,500% as the stock soared to $70 over the next decade. However, Buffett sold virtually all of Berkshire's Freddie Mac stake by 2000, after he noticed that the company was taking unnecessary risks to keep delivering double-digit earnings growth. Today, Freddie Mac trades for about $3 -- less than Buffett originally paid nearly 30 years ago.
At the time of the deal in 2009, Berkshire's purchase of Burlington Northern Santa Fe (BNSF) Railroad was Berkshire's largest-ever acquisition. Berkshire already owned nearly one-fourth of the company, and it paid $26.71 billion for the rest of it. Including debt, the deal cost Berkshire nearly $36 billion, and Buffett admitted that the deal was "expensive." However, it's hard to argue with the purchase now. Estimates vary slightly, but a Bloomberg analysis estimates that BNSF's current value is more than $93 billion.
Since it comes from arguably the best stock investor of all time, it may seem surprising that Buffett believes simple low-cost index funds are the smartest investment most people can make. Buffett argues that most people don't have the time or knowledge to select a portfolio of individual stocks that can beat the market, and that high-cost investment vehicles like hedge funds are destined to lose to the market, as a whole.
Buffett put his money where his mouth is, wagering $500,000 of his own money that an S&P 500 index fund would beat a basket of five "funds of funds" selected by hedge fund manager Ted Seides. After nine full years of the 10-year bet, the results weren't close -- a total return of 85.4% for the S&P index fund versus 22% for the hedge funds. In fact, the performance was so lopsided that Seides conceded the bet early.
Although it's a relatively small piece of Berkshire's operation, See's Candies is one deal that has worked out particularly well for Buffett and Berkshire's investors. Buffett paid $25 million for the family-owned candy company in 1972, and it has returned $1.35 billion to Berkshire since. Even when factoring in the $32 million Berkshire has invested into the business over the years, this is an extraordinary return on investment.
Warren Buffett's biggest stock investment win of all time is an excellent example of what he looks for in a "forever stock." Buffett bought shares of Coca-Cola for Berkshire Hathaway in 1988, and just under 30 years later, the stock is up by approximately 1,350% from Buffett's cost basis. And that doesn't even include the dividends Berkshire has received over the past three decades. At the current dividend rate, Coca-Cola pays Berkshire $592 million per year.
There's a good case to be made that Buffett's best deal of all time was his purchase of a majority stake in Berkshire Hathaway itself. At the time Buffett took control of Berkshire, the company's stock was trading for less than $12 per share. Today, the "A" shares are worth more than $280,000.
However, you may be surprised to hear that Buffett has referred to his purchase of Berkshire as his worst investment of all time. At the time he took over, Berkshire was a struggling textile company. Buffett reasons that if he had simply started buying insurance companies instead of dedicating valuable resources to a struggling business, he would have made an additional $200 billion in profit for himself and Berkshire's investors over the past 50 or so years.