Berkshire Hathaway: An Unusual Stock, An Unusual Company

  +Follow August 29, 2013 9:24AM
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Berkshire Hathaway Inc. ($BRK-A) has quite an offbeat history. The $227 billion company began as a New England textile mill called Berkshire Fine Spinning Associates. Founded in 1839, the original Berkshire did reasonably well, going on to earn $29.5 million at its peak in 1948. Though an impressive feat for an industrial plant not one generation removed from the Depression, Berkshire wouldn’t become a world-class company making yards of cotton.

When an investor named Warren Buffett took control of the company in 1965, Berkshire shifted focus from making textiles, to making massive investments. As a holding company that emphasized growth, Berkshire would completely transition out of textiles in 1970 and eventually become one of the most successful – and idiosyncratic – companies on the American market.

The Berkshire Strategy

As would be expected from an investor with a successful, original investing strategy, Buffett is a guru, and a quote machine. Some of his maxims, like “If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes”and “Our favorite holding period is forever” have entered the lexicon as a rallying cry for value investors.

As this implies as well, as a holding company Berkshire plays the ultra-long game. Buffett has played it ths way pretty much since the beginning. After fully taking control of Berkshire in 1965, Buffett made one of his first major outside investments in American Express Company ($AXP), sinking $13 million into the struggling credit card company, and stuck with it, intending to ride it out.

His reasoning for sticking to it was simple. While AMEX's stock was reeling, he noticed when he went out in Omaha, people were still using their AMEX cards at the same rate. He reasoned then, in the long term, the company would ultimately be fine. And he was right. In 2013, Berkshire's 13.7 percent of American Express is worth roughly $10.64 billion.

Berkshire also first started buying into GEICO in 1976, taking total control in 1996. Other major investments like Coca-Cola Company (KO) and International Business Machines Corp (IBM) have likewise been Berkshire holdings for decades.

Berkshire is almost always in it for the long haul - and they expect the same commitment from their own investors.

Berkshire on Berkshire

Berkshire looks for the honest value of a company on the long term, and applies that ethos most dogmatically to itself, as evidenced in their stock.

As Berkshire’s prominence grew in the 1980s, pressure mounted on Buffett to split Berkshire's stock and attract outside speculation. In 1983, in his famous annual shareholder letter, Buffett outlined his reasoning why the company wouldn’t split. He explained that he wanted Berkshire’s stock to remain at its “intrinsic business value” and that splitting causes instability. He wrote:

If the holders of a company’s stock and/or the prospective buyers attracted to it are prone to make irrational or emotion- based decisions, some pretty silly stock prices are going to appear periodically. Manic-depressive personalities produce manic-depressive valuations. Such aberrations may help us in buying and selling the stocks of other companies.  But we think it is in both your interest and ours to minimize their occurrence in the market for Berkshire.

Though shareholders are, by definition, owners of the company, Buffet wrote that never splitting got investors into the mindset wherein they “keep their eyes focused on business results, not market prices… (and) think and act like business owners.”

Berkshire, then, operates like a mutual fund where the owners are playing with their own money. This engenders an incredible amount of confidence in the investor/owners,

Buffett’s commitment to these value investing principles have produced what is probably the strangest, yet successful stocks on the market.

A Strange Stock Indeed

A single Class-A voting share of Berkshire currently costs a cool $168.585.50,. That's roughly $166,000 a share more expensive than the second most expensive stock, Seabord Corp (SEB) at $2,704.25.

Berkshire Class A shares averages daily volume in the low hundreds, as most investors are, like Bershire wants, looking for stability.

This doesn't mean Berkshire as an investment is bulletproof. The stock tanked during the financial crisis, losing nearly a third of its value in 2008. But aside from that drop, and another minor dip after the tech bubble burst in the early 2000s, as an investment Berkshire has more or less risen steadily, and has proven a solid return for investors.

The stock has gained 2,144 percent since 1990. For comparison, in that same time frame the S&P 500 has only gained 379.64 percent.

Berkshire, however, has gone against this value investment Puritanism once. The company split their Class B shares, shares Buffett was hesitant to create in the first place. “Baby B” shares, like their parents, have performed well, gaining 446.76 since their 1996 creation to hit $112.20 a share.

For a long-term investor, quite a return indeed. Which is exactly what Buffett would want.

(image of Warren Bufett courtesy fo Flickr)

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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Results for brka
Gus Fuentes
23 Oct 14 21:11:18
RT @Nobears_Nobulls: Old Fox, Mr. @WarrenBuffett lost $2.3 billion this week. http://t.co/TXVJHbUD8J http://t.co/V1X8uvKyeQ $BRKA
No bears No bulls
23 Oct 14 21:00:48
Old Fox, Mr. @WarrenBuffett lost $2.3 billion this week. http://t.co/TXVJHbUD8J http://t.co/V1X8uvKyeQ $BRKA
BRK-A Quote and News
23 Oct 14 13:33:57
$BRKA stock quote, Oct 23: 208109.00 +1584.00 (+0.77%).
James Giannantonio
23 Oct 14 13:06:38
@WarrenBuffett Puts #Wind in #Berkshire’s Sails http://t.co/UIXNrQJzI0 via @WSJ #renewableenergy #energy #stocks #CSR $BRKA $BRKB
BRK-A Quote and News
23 Oct 14 12:36:32
$BRKA stock quote, 3:20pm: 208006.4531 +1481.4531 (+0.72%).
BRK-A Quote and News
23 Oct 14 11:35:30
$BRKA stock quote, 2:15pm: 208850.00 +2325.00 (+1.13%).
ETFguide.com
23 Oct 14 10:45:03
VIDEO: Warren Buffett's favorite asset class (besides stocks) https://t.co/WiEKbhnYvD $IBM $BRKA
BRK-A Quote and News
23 Oct 14 10:35:42
$BRKA stock quote, 1:06pm: 208418.00 +1893.00 (+0.92%).
BRK-A Quote and News
23 Oct 14 09:34:33
$BRKA stock quote, 12:14pm: 208379.00 +1854.00 (+0.90%).
BRK-A Quote and News
23 Oct 14 08:33:38
$BRKA stock quote, 11:14am: 208850.00 +2325.00 (+1.13%).
Bruno J. Navarro
23 Oct 14 07:56:43
Buffett copycats risk a pounding as Berkshire portfolio suffers http://t.co/WrcsR0Eh8T $BRKA $BRKB $IBM $KO $AXP $XOM $GM $WMT $PG
BRK-A Quote and News
23 Oct 14 07:33:46
$BRKA stock quote, 10:17am: 208350.00 +1825.00 (+0.88%).
Alexander WJ
22 Oct 14 17:32:35
i dont think $brka can survive #buffet's passing... #geico spends too much money on marketing, but we trust in buffets leadership
Solaris
22 Oct 14 15:27:25
RT @etfguide: VIDEO: Warren Buffett's favorite asset class (besides stocks) https://t.co/WiEKbhnYvD $IBM $BRKA
ETFguide.com
22 Oct 14 14:30:15
VIDEO: Warren Buffett's favorite asset class (besides stocks) https://t.co/WiEKbhnYvD $IBM $BRKA
BRK-A Quote and News
22 Oct 14 13:33:29
$BRKA stock quote, Oct 22: 206525.00 -1805.00 (-0.87%).
BRK-A Quote and News
22 Oct 14 12:33:34
$BRKA stock quote, 3:17pm: 207429.2188 -900.7812 (-0.43%).
BRK-A Quote and News
22 Oct 14 11:33:36
$BRKA stock quote, 2:16pm: 207012.00 -1318.00 (-0.63%).
ΛDƐßΛY♡(2pac Shakur)
22 Oct 14 10:51:50
.@WarrenBuffett @CocaCola @IBM Don't shed too many tears for the Oracle. Top $BRKA/$BRKB holdings $WFC $AXP $USB having big bump this week."
BRK-A Quote and News
22 Oct 14 10:34:41
$BRKA stock quote, 1:03pm: 207549.2188 -780.7812 (-0.37%).
Paul R. La Monica
22 Oct 14 10:23:23
.@WarrenBuffett @CocaCola @IBM Don't shed too many tears for the Oracle. Top $BRKA/$BRKB holdings $WFC $AXP $USB having big bump this week.
BRK-A Quote and News
22 Oct 14 09:33:50
$BRKA stock quote, 12:18pm: 207990.00 -340.00 (-0.16%).
BRK-A Quote and News
22 Oct 14 08:33:32
$BRKA stock quote, 11:16am: 208288.00 -42.00 (-0.02%).
Bruno J. Navarro
22 Oct 14 07:41:00
Down $2.5 billion this week, IBM & Coke add to Warren Buffett's woes http://t.co/NiBMcw8DBV $IBM $KO $BRKA $BRKB
BRK-A Quote and News
22 Oct 14 07:34:10
$BRKA stock quote, 10:17am: 208030.00 -300.00 (-0.14%).
TêJäū§
22 Oct 14 04:33:49
#TejausSingh ThinkingAlpha: "The best thing I did was choose the right heroes." - Warren Buffett #quotes #heroes #WarrenBuffett $BRKA $BR...
Matthew Whiz Buckley
22 Oct 14 04:33:03
RT @ThinkingAlpha: "The best thing I did was choose the right heroes." - Warren Buffett #quotes #heroes #WarrenBuffett $BRKA $BRKB #best #t…
Thinking Alpha™
22 Oct 14 04:30:08
"The best thing I did was choose the right heroes." - Warren Buffett #quotes #heroes #WarrenBuffett $BRKA $BRKB #best #thing
Sirius Independent☆彡
21 Oct 14 18:13:55
年金資金で、どうーーーーーしても株が買いたいなら、バークシャーを買っとけ、って。 $BRKA #BRKB #Buffett
BRK-A Quote and News
21 Oct 14 13:33:26
$BRKA stock quote, Oct 21: 208330.00 +2480.00 (+1.20%).
BRK-A Quote and News
21 Oct 14 12:33:21
$BRKA stock quote, 3:17pm: 207929.00 +2079.00 (+1.01%).
BRK-A Quote and News
21 Oct 14 11:33:30
$BRKA stock quote, 2:18pm: 207931.4531 +2081.4531 (+1.01%).
Paul R. La Monica
21 Oct 14 10:34:21
$KO is probably way too big for Warren Buffett to try and rescue, right? Even if $BRKA/$BRKB teamed with 3G, could Coke really get acquired?
Bruno J. Navarro
21 Oct 14 07:55:30
Warren Buffett just lost ANOTHER $1B on this http://t.co/DeXfxm5b3p $BRKA $BRKB
Ethos.Pathos.Logos.
21 Oct 14 01:52:26
RT @YahooFinance: Singing the blues: @warrenbuffett loses more than $900M in $IBM retreat. http://t.co/Xd6J4QNcjG via @adamsamson $BRKA $BR…
Blue Mountain
20 Oct 14 23:16:12
RT @YahooFinance: Singing the blues: @warrenbuffett loses more than $900M in $IBM retreat. http://t.co/Xd6J4QNcjG via @adamsamson $BRKA $BR…
Banker's Umbrella
20 Oct 14 23:07:08
RT @YahooFinance: Singing the blues: @warrenbuffett loses more than $900M in $IBM retreat. http://t.co/Xd6J4QNcjG via @adamsamson $BRKA $BR…
Hotstocked News
20 Oct 14 22:50:23
RT @YahooFinance: Singing the blues: @warrenbuffett loses more than $900M in $IBM retreat. http://t.co/Xd6J4QNcjG via @adamsamson $BRKA $BR…
BUSINESS APPETITE
20 Oct 14 22:43:52
RT @YahooFinance: Singing the blues: @warrenbuffett loses more than $900M in $IBM retreat. http://t.co/Xd6J4QNcjG via @adamsamson $BRKA $BR…
Frank Briceño
20 Oct 14 22:37:53
RT @YahooFinance: Singing the blues: @warrenbuffett loses more than $900M in $IBM retreat. http://t.co/Xd6J4QNcjG via @adamsamson $BRKA $BR…
Francis Jenkins
20 Oct 14 22:33:31
RT @YahooFinance: Singing the blues: @warrenbuffett loses more than $900M in $IBM retreat. http://t.co/Xd6J4QNcjG via @adamsamson $BRKA $BR…
Yahoo Finance
20 Oct 14 22:31:49
Singing the blues: @warrenbuffett loses more than $900M in $IBM retreat. http://t.co/Xd6J4QNcjG via @adamsamson $BRKA $BRKB
Michael Haddad
20 Oct 14 14:35:42
@rationalwalk It's different money. $IBM was purchased within insurance subs where $BRKA is a return of capital to shareholders.
BRK-A Quote and News
20 Oct 14 13:33:27
$BRKA stock quote, Oct 20: 205850.00 +345.00 (+0.17%).
BRK-A Quote and News
20 Oct 14 12:33:28
$BRKA stock quote, 3:17pm: 205387.2188 -117.7812 (-0.06%).
BRK-A Quote and News
20 Oct 14 11:33:18
$BRKA stock quote, 2:14pm: 205112.00 -393.00 (-0.19%).
BRK-A Quote and News
20 Oct 14 10:34:34
$BRKA stock quote, 1:18pm: 205024.00 -481.00 (-0.23%).
BRK-A Quote and News
20 Oct 14 09:34:02
$BRKA stock quote, 12:12pm: 205585.00 +80.00 (+0.04%).
BRK-A Quote and News
20 Oct 14 08:33:21
$BRKA stock quote, 11:12am: 205644.00 +139.00 (+0.07%).
The Rational Walk
20 Oct 14 08:16:56
$WFC is actually down about the same % as $IBM since 6/30, noted when looking at $BRKA portfolio.
				
				
  +Follow August 29, 2013 9:24AM
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