Warren Buffett, in His Last Quarter as Berkshire Hathaway CEO, Made a Move That Investors Shouldn't Ignore. (And It Reinforces What He's Said Over 60 Years.)

Warren Buffett is a name investors don’t ignore. That’s because the billionaire has proven his investing strengths over many years – Buffett led Berkshire Hathaway to market-beating success over six decades as he hand-picked many stocks and held onto them as their growth stories unfolded.

Importantly, Buffett has shared the secrets of his success not just through required filings but also through interviews and other public communications. So, investors who have listened to him and applied some of his techniques have benefited.

Buffett remains chairman of Berkshire, but he retired as chief executive officer at the end of last year and handed the reins to Greg Abel. Before he did, though, he made a move in his last quarter on the job that investors shouldn’t ignore. And it reinforces everything he’s said over 60 years.

Image source: The Motley Fool.

A net seller of stocks

First, it’s important to note that Buffett hasn’t made many big purchases in recent quarters. In fact, he was a net seller of stocks over the past three years as the S&P 500 and stock valuations soared. A comment he made in his latest letter to shareholders offers us some insight into his moves.

“Often, nothing looks compelling; very infrequently, we find ourselves knee-deep in opportunities,” Buffett wrote.

Buffett focuses on value, or buying stocks when they’re trading for less than they’re actually worth, so it isn’t surprising that he has remained cautious as stocks and valuations marched higher. The S&P 500 Shiller CAPE ratio, an inflation-adjusted measure of stock price in relation to earnings, has soared, reaching a high it’s only touched once before throughout its history.

S&P 500 Shiller CAPE Ratio data by YCharts

Now, let’s consider the move Buffett made in the fourth quarter, his last directing Berkshire’s investments. This actually is a decision to stay put on two stocks in particular: Coca-Cola (KO 0.33%) and **American Express **(AXP +2.09%). This is noteworthy for two reasons. First, these are two of Buffett’s top holdings, in the fourth and second position, respectively. And they are companies he’s owned for many years. Buffett started buying shares of Coca-Cola in the late 1980s and American Express in the mid-1990s (though his history with American Express goes back to the 1960s).

A focus on long-term investing

This lack of action on two major stocks is significant as it reinforces two key components of Buffett’s investment strategy: holding onto quality stocks for the long term and benefiting from solid dividend players.

We might have guessed that Buffett would keep this bet going, due to something he wrote in his 2023 letter to shareholders:

“During 2023, we did not buy or sell a share of either Amex or Coke – extending our own Rip Van Winkle slumber that has now lasted well over two decades. Both companies again rewarded our inaction last year by increasing their earnings and dividends.”

So, why should you, as an investor, pay keen attention to Buffett’s decision to hand the portfolio off to Abel with Coca-Cola and American Express as core positions? As Buffett repeated on many occasions and through many words over his tenure, it’s important to identify quality companies – if they happen to pay a dividend, that’s even better – and hold on for the long term. A look at the performance of Coca-Cola and American Express during Buffett’s holding period shows this bet has been a winning one. This includes dividend payments.

KO Total Return Price data by YCharts

How to apply Buffett’s strategy

How can you apply this to your own investment strategy? Like Buffett, look for quality companies – those with solid competitive advantages and healthy balance sheets – and aim to buy shares when they trade at reasonable valuations. The idea is then to hold on for the long term – at least five years, but don’t be afraid to hold on for decades if the investment is a winner and the company has proven its ability to grow over time.

Buffett demonstrated his belief in long-term investing through his last days as investing chief at Berkshire Hathaway. And it’s a message that may serve the rest of us investors well, showing us the power of buying quality stocks and sticking with them.