And Now, a View of the Fundamentals

What does the ultimate fundamental investor--super stock-picker Warren Buffett--think about blue-chip stocks’ prospects?

He apparently trimmed his holdings in Citigroup, Walt Disney and Wells Fargo last year, bought some more American Express--and regretted that he didn’t hold on to McDonald’s.

Buffett’s annual letter to shareholders of his holding company, Berkshire Hathaway, was released on Saturday. In it, Berkshire lists its individual stock holdings that were worth $750 million or more as of Dec. 31.

Overall, 1998 was a tough year for his stock picks, Buffett said.

“Several of the public companies in which we have major investments experienced significant operating shortfalls that neither they nor I anticipated early in the year,” Buffett wrote. “Consequently, our equity portfolio did not perform nearly as well as did the S&P; 500” index, which gained 28.6% last year.

Of Buffett’s largest holdings, Coca-Cola Co. shares returned just 1.3% in 1998 and Gillette Co. shares lost 3.9%.

Buffett apparently did cut back on another disappointing stock--Citigroup. At the end of 1997, Berkshire owned 23.7 million shares of Travelers Group. Travelers and Citicorp merged in October to form Citigroup. Travelers holders exchanged each of their shares for one share in the new company.

But Citigroup was absent from Berkshire’s list of stockholdings worth $750 million or more as of Dec. 31.

Yet Buffett said his portfolio changes last year hurt his returns. “In particular, my decision to sell McDonald’s was a very big mistake,” he wrote. “Overall, you would have been better off last year if I had regularly snuck off to the movies during market hours.”

Shares of McDonald’s returned 62% last year. In the 1997 annual report, the stock dropped from Berkshire’s list of top holdings, so it’s unclear how big a stake he had left in 1998. Buffett didn’t say how much he sold.

Buffett’s letter is available online at https://www.berkshirehathaway.com.