MNWarren Buffett’s Berkshire Hathaway (BRK.A) (BRK.B) has had quite a run since the investment icon took the helm almost 60 years ago.
And the firm hit a major milestone on Aug. 27.
Berkshire’s financial performance has been stellar throughout Buffett’s tenure. The stock generated average annual returns of 20% from 1965 through 2023, doubling the S&P 500’s 10% returns.
Buffett, influenced by his partner Charlie Munger, has gone from looking for fair companies at great prices to looking for great companies at fair prices. (Munger died in November 2023.)
TheStreet
The Oracle of Omaha (Buffett’s hometown) has become the country’s most trusted spokesman for the stock market and economy. During the financial crisis of 2007-09, his reassurance to the public that all would be okay likely played a role in calming things down.
Berkshire has a hefty stock portfolio. Among recent trades, it halved its stake in Apple (AAPL) , to $91 billion, and unloaded $5.4 billion of Bank of America (BAC) .
And the company recently established new positions in beauty company Ulta (ULTA) and defense contractor Heico (HEI) .
Berkshire stock surges this year
Berkshire shares have soared 33% year to date, easily topping the S&P 500’s 18.4% gain, as of Aug. 30. Strong performance by Berkshire’s insurance companies helped spark the gains, as has appreciation of the company’s stock positions.
The economy’s resilience also has played a role, as many of Berkshire’s subsidiaries depend on the economy’s strength. One example is BNSF (Burlington Northern Santa Fe) Railway.
Many analysts and investors are bullish on Berkshire, including Morningstar analyst Greggory Warren. He assigns Berkshire a wide moat, meaning he sees it with competitive advantages that will last at least 20 years.
Related: Warren Buffett's Berkshire sheds stock of major bank
To be sure, he thinks it’s pricey now. The class B shares closed on Aug. 30 at $475.92, compared with his fair value estimate of $427. The shares gained 10.2% in August. (The Class A shares (BRK.A) , the pricier version of Berkshire, closed at $715,300. They were up 8.51% on the month and are up 31.8% in 2024.)
“We believe that Berkshire, owing to its diversification and its lower overall risk profile, offers one of the better risk-adjusted return profiles in the financial-services sector,” he wrote in a commentary. “It’s a generally solid candidate for protection during market selloffs.”
Warren is impressed with Berkshire's consistent ability to generate high-single- to double-digit growth in book value per share, comfortably above his estimate of its cost of capital.
Pearls of Buffett’s wisdom
Investors eagerly await Buffett’s annual letter to shareholders for its investment wisdom. His latest missive was released Feb. 24.
Berkshire had $277 billion in cash as of June 30, and it’s not easy to deploy that money in a meaningful way (buying other companies), given Berkshire’s huge size, Buffett wrote in the letter.
Related: What Buffett's huge Apple sale really means
“There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others,” he said.
He also cited a good equation for investment success: “Thanks to the American tailwind and the power of compound interest, the arena in which we operate has been – and will be – rewarding if you make a couple of good decisions during a lifetime and avoid serious mistakes.”
Berkshire is now a $1 trillion company
One proof of that success for Berkshire and Buffett is the milestone alluded to above: Berkshire crossed the $1 trillion threshold for market capitalization on Wednesday.
That puts it in select company. Alphabet (GOOGL) , Amazon (AMZN) , Apple, Meta Platforms (META) , Microsoft (MSFT) and Nvidia (NVDA) are the others. And you probably already noticed what sets Berkshire apart from this select six: It’s not a technology company.
Expert Interviews:
- Fund manager picks 3 best-of-breed stocks (including Chevron)
- Fund manager picks three blue chip stocks
- $10 billion fund manager picks three favorite stocks
Of course, Berkshire does own the $91 billion stake in Apple and $2.3 billion of Internet domain registry Verisign. But Berkshire’s operating subsidiaries are generally old-economy companies, such as See’s Candies and Geico insurance.
Obviously the megacap tech companies have grown more quickly than Berkshire. Alphabet began as Google in 1998 and reached $1 trillion in market cap in many fewer years than Berkshire (22 versus 59 years).
It will be interesting to see if Berkshire dives further into tech after Buffett, who turns 94 on Aug. 30, passes. In May 2021, Buffett said that a top deputy of his at Berkshire, Greg Abel, who now is 62, would succeed him.
The author of this story owns shares of Alphabet, Apple and Bank of America.
Related: Veteran fund manager sees world of pain coming for stocks
