Just weeks ago, on August 14, Class A shares of American conglomerate Berkshire Hathaway (BRK-A) surpassed $200,000. Yes, you read that right, $200,000: making Berkshire Hathaway the single most expensive stock traded on U.S. markets. The current price of these Class A shares alone is impressive; however, when you consider that in 1967 the company traded at $33 per share, this milestone is downright insane. Such an accomplishment represents a 6,060x share price increase in less than half a century. Today, Berkshire Hathaway commands a market capitalization of over $330 billion and holds more than $56 billion in cash reserves. If you aren’t familiar with Berkshire Hathaway and its operations, you are probably wondering how a company could possibly grow at such an incredible rate. The answer is actually quite simple: Warren Buffett.
In May of 1965, Warren Buffett named himself director of a small (at the time), troubled holdings company, Berkshire Hathaway. Over the next five years, Buffett made a number of moves to bolster the purchasing power of Berkshire Hathaway, including the 1968 acquisition of National Indemnity for $8.6 million. In 1970, Buffett became Berkshire Hathaway's Chairman of the Board and, shortly thereafter, purchased San Francisco’s See’s Candies for $25 million, at that point his largest investment. Between 1965 and 1975 the value of Berkshire Hathaway increased from $20-$95 per share, and Buffett’s ownership of the company increased from 29% to 43% (Buffett’s existing partnership distributed shares of Berkshire Hathaway, which diluted his prior 49% stake). 1976 marked an especially important year for Buffett and Berkshire Hathaway, as GEICO, a company Buffett had eyed for some time, saw its stock price plummet to $2 per share. This presented Buffett with a buying opportunity, and Berkshire continually invested more money into GEICO, generating millions in profits and eventually leading to Berkshire Hathaway's takeover of GEICO.
By 1982, Berkshire Hathaway was worth $750 per share, and Buffett had assembled an asset portfolio worth $1.3 billion. In 1988, Buffett bought a 7% stake in Coca-Cola (KO), equating to $1.02 billion in stock. Not even three years later, Buffett’s Coca-Cola investment was more valuable than all of Berkshire Hathaway (back in 1988). In 1989, Berkshire Hathaway traded at over $8,000 per share; by the end of the 1990s, the company's stock price vaulted to $80,000.
Buffett uses a simple formula when choosing companies to add to Berkshire’s portfolio: find a company that is fundamentally strong, but undervalued, invest in said company, use the investment stake to remedy publicity issues, and then profit from the company’s turnaround.
As Berkshire’s cash pool continued to grow, so to did Buffett's influence. Nowadays, even rumors about potential Buffett investments can send a company's stock price to all-time highs. Berkshire’s current portfolio contains billion-dollar holdings in many popular companies, including: Wells Fargo (WFC), Coca-Cola (KO), IBM, American Express (AXP), Wal-Mart (WMT), Procter & Gamble (PG), Exxon Mobil (XOM), U.S. Bancorp (USB), DaVita Healthcare (DVA), Moody’s Corporation (MCO), Goldman Sachs (GS), and DirecTV (DTV).
A side note on Berkshire Hathaway and Goldman Sachs: In 2008, just as the American financial crisis was intensifying, Berkshire Hathaway invested $5 billion in Goldman Sachs. This “emergency loan” not only saved Goldman Sachs, and allowed Berkshire an institutional stake in the investment bank, but it also displayed Buffett's confidence in the American economy. The stock market rally over the last six years has seemingly proved him correct.
Throughout his prolific career, Warren Buffett has built an absolutely unrivaled holdings conglomerate. Moreover, Buffett’s steadfast employment of value investing techniques, in addition to his strong emphasis on examining business fundamentals, should be viewed as a successful investment strategy for all traders, regardless of experience.