Buffett’s Berkshire Hathaway

Warren Buffett’s company, Berkshire Hathaway, saw its class A shares exceed $300,000 per share in December 2017. Since then the stock price has continued to rally and it recently traded over $320,000 per share making it by far the highest priced stock in the world. Buffett has run Berkshire Hathaway since April 1965 when he purchased control of what was then a struggling New England textile company. Prescient investors who invested $1000 in the class A shares back in 1965 would have seen their investment grow to $16.6 million today.

A lot has changed in 53 years and Berkshire Hathaway has moved far from its humble manufacturing roots. Mr. Buffett, however, has adhered to his underlying “value investing “ principles. His genius has been in flexibly applying his value approach and remaining within what he calls his “circle of competence”. From the very start he has been candid with his fellow shareholders. His favorite measure of management performance is the growth of Berkshire Hathaway’s book value per share compared to the annual growth of the S&P 500. His long-term track record is truly amazing. Under his tutelage Berkshire Hathaway has delivered annual compounded returns of 18.9% compared to the S&P 500’s 10.0%.

Buffett’s performance since 2013, however, has generally lagged his benchmark, a fact he has been quick to confess. Here is his recent performance record.

Buffett’s Five Year Record

Berkshire Hathaway S&P 500 Better(Worse)

2013 18.2% 32.4% (14.2%)

2014 8.3 13.7 (5.4)

2015 6.4 1.4 5.0

2016 10.7 12.0 (1.3)

2017 10.7* 21.8 (11.1)

*extrapolated from 9 months of returns

Probably the biggest drag on Buffett’s recent performance is the fact that Berkshire Hathaway has become a huge conglomerate with insurance, railroad, utility, and various other disparate businesses. He has acknowledged that “moving the needle” becomes harder and harder with size. Nevertheless, most long-term Berkshire Hathaway investors must feel pretty good about their decision to invest alongside the greatest investment mind of our times.

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