David Herro, Morningstar's International Stock Fund Manager of the Decade, in an interview said the following about Diageo (DEO):
"There is one nice, stable, well-managed company that at this stage does not appear very expensive, and it's a stock you could hold for a long, long time, unless it spikes way up. Again, you cannot forget price. That stock is Diageo..."
In the 1991 Berkshire Hathaway (BRKa) shareholder letter, Guinness was revealed as a holding for the first time.
These days, Guinness is one of the many leading global brands of Diageo.
Warren Buffett wrote the following in the 1991 Berkshire letter:
"Our Guinness holding represents Berkshire's first significant
investment in a company domiciled outside the United States.
Guinness, however, earns its money in much the same fashion as
Coca-Cola and Gillette, U.S.-based companies that garner most of
their profits from international operations. Indeed, in the sense
of where they earn their profits - continent-by-continent - Coca-
Cola and Guinness display strong similarities. (But you'll never
get their drinks confused - and your Chairman remains unmovably in
the Cherry Coke camp.)
We continually search for large businesses with
understandable, enduring and mouth-watering economics that are run
by able and shareholder-oriented managements. This focus doesn't
guarantee results: We both have to buy at a sensible price and get
business performance from our companies that validates our
assessment. But this investment approach - searching for the
superstars - offers us our only chance for real success. Charlie
and I are simply not smart enough, considering the large sums we
work with, to get great results by adroitly buying and selling
portions of far-from-great businesses. Nor do we think many others
can achieve long-term investment success by flitting from flower to
Diageo's strategic brands include Johnnie Walker, Smirnoff, Ketel One, Baileys, Captain Morgan, Jose Cuervo, Tanguerey, Guinness, Crown Royal, and J&B.
Diageo was first mentioned on this blog, as part of the six stock portfolio*, as a business with an attractive share price when it was selling at around $ 45/share. At that price it sported a dividend of around 5%.
The current price is more like $ 76.
It's still a terrific franchise with intrinsic value that should grow nicely over time but the stock is a lot less interesting at current prices.
More from the 1991 letter:
"If my universe of business possibilities was limited, say, to
private companies in Omaha, I would, first, try to assess the long-
term economic characteristics of each business; second, assess the
quality of the people in charge of running it; and, third, try to
buy into a few of the best operations at a sensible price. I
certainly would not wish to own an equal part of every business in
town. Why, then, should Berkshire take a different tack when
dealing with the larger universe of public companies? And since
finding great businesses and outstanding managers is so difficult,
why should we discard proven products? (I was tempted to say "the
real thing.") Our motto is: 'If at first you do succeed, quit
John Maynard Keynes, whose brilliance as a practicing investor
matched his brilliance in thought, wrote a letter to a business
associate, F. C. Scott, on August 15, 1934 that says it all: 'As
time goes on, I get more and more convinced that the right method
in investment is to put fairly large sums into enterprises which
one thinks one knows something about and in the management of which
one thoroughly believes. It is a mistake to think that one limits
one's risk by spreading too much between enterprises about which
one knows little and has no reason for special confidence. . . .One's knowledge and experience are definitely limited and there are
seldom more than two or three enterprises at any given time in
which I personally feel myself entitled to put full confidence.'"
Diageo has many great qualities but, unlike Herro, I think it is not quite cheap enough to make incremental purchases (though I intend to continue owning it long-term unless valuation becomes extreme).
Recently, Diageo participated in the Barclays Back To School Consumer Conference.
Here's an article with some notes from that conference.
Long position in DEO and BRKb
*The six stock portfolio is up 67% compared to 37% for the S&P 500 over the same time period (including dividends for both the portfolio and the benchmark). There was no trading over that time frame. The portfolio is simply six good businesses bought at discounts to value with the intention of very long-term ownership. The economics of these businesses -- bought with a margin of safety to account for unknowables and misjudgments -- will generally drive returns over time...not trading skills. It's intentionally concentrated. Will rarely sell one of these if misjudged, something materially damages one of these franchises long run viability, price meaningfully exceeds estimated per share value, or if opportunity cost becomes very high.
This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.