Buffett’s 1994 Guidance That Continues to Undermine Many Investors’ Holdings: He Preferred ‘Having a Large Stake in the Hope Diamond Over Full Ownership of a Rhinestone’

Key Takeaway

Warren Buffett, in his 1994 letter to Berkshire Hathaway shareholders, used a memorable metaphor to highlight a principle that distinguishes patient investors from short-term traders: it is more rewarding to own a share of something remarkable than to possess all of something average.

He famously stated that “it is far better to own a significant portion of the Hope Diamond than 100% of a rhinestone.” This wasn’t just a comment on how to build a portfolio—it explained why Berkshire Hathaway has spent years acquiring partial interests in exceptional, market-leading companies rather than seeking full ownership of less impressive businesses.

Understanding Buffett’s Approach

By 1994, Berkshire Hathaway already had several wholly owned subsidiaries. However, Buffett made it clear that the company’s partial stakes in outstanding businesses were equally vital to its long-term performance. These investments weren’t mere stock picks or short-term trades; they represented enduring partnerships with companies that enjoyed lasting competitive advantages, international reach, and strong pricing power—what Buffett described as “rare gems.” The secret wasn’t to own them outright, but to hold a meaningful share that allowed Berkshire’s shareholders to benefit from their financial success.

Illustrative Examples

• Coca-Cola: One of Berkshire’s most iconic investments, Coca-Cola, sold about 280 billion eight-ounce servings worldwide in 1994, earning less than a penny per serving. While that may seem insignificant, Berkshire’s 7.8% stake meant it effectively participated in the profits from 21 billion servings. This translated into nearly $200 million in what Buffett called “soft-drink earnings,” demonstrating how small margins can become substantial when multiplied on a global scale.
• Gillette: Berkshire owned roughly 7% of Gillette, which then commanded about 70% of the worldwide razor and blade market by revenue. This ownership gave Berkshire an indirect claim on approximately $250 million of Gillette’s 1994 sales. Buffett didn’t need to control the entire company to benefit from its dominance—just a meaningful share of its steady, recurring cash flow.
• Wells Fargo: With a 13% stake in Wells Fargo, which was valued at $53 billion at the time, Berkshire’s share was equivalent to owning a $7 billion “Berkshire Bank.” That portion alone generated around $100 million in earnings in 1994. There was no need for a takeover or operational control—just a significant interest in a well-managed, fundamentally strong institution.

The Power of Owning Exceptional Businesses

This is where Buffett’s Hope Diamond analogy comes into play. You can own a rhinestone outright and polish it endlessly, but it will never become valuable. The Hope Diamond, on the other hand, simply needs to be preserved and given time. Buffett recognized that extraordinary companies don’t require constant intervention or reinvention—they need capital, patience, and the opportunity to grow. Holding a modest share in a truly outstanding business can far surpass the returns from owning all of a mediocre one that constantly demands attention and resources.

Diversification Through Quality

Buffett also emphasized that Berkshire wasn’t limited to just one or two of these exceptional investments. Over time, the company built a diverse collection of high-quality holdings, each contributing its own stream of earnings, competitive advantage, and growth potential. Rather than increasing risk, this approach created a portfolio of dominant businesses across different industries.

Lessons for Investors

Buffett’s philosophy challenges the common desire for total control and simplicity. He prioritized quality over ownership, preferring to be a partner in a winning business rather than the sole owner of an average one. In a world that often celebrates founders, complete control, and dramatic turnarounds, Buffett’s message from 1994 remains quietly revolutionary.

Decades later, Berkshire’s track record suggests that Buffett’s metaphor was not just clever, but also prophetic. The real edge wasn’t in owning everything—it was in owning enough of the very best and allowing time to work its magic.