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)

Results for brka
CSIMA CBS
18 Apr 14 21:40:08
Is $K @WarrenBuffett's and $BRKA's next big target? http://t.co/DkyBWKQmUs
Paul Price
18 Apr 14 15:30:09
Better Than Berkshire? $VMI $BRKB $BRKA http://t.co/0qxP9UpUVJ
BRK-A Quote and News
17 Apr 14 13:35:42
$BRKA stock quote, Apr 17: 190639.00 +1739.00 (+0.92%).
BRK-A Quote and News
17 Apr 14 12:33:14
$BRKA stock quote, 3:13pm: 191193.00 +2293.00 (+1.21%).
BRK-A Quote and News
17 Apr 14 11:33:09
$BRKA stock quote, 2:17pm: 191301.375 +2401.375 (+1.27%).
BRK-A Quote and News
17 Apr 14 10:33:15
$BRKA stock quote, 1:18pm: 190772.6875 +1872.6875 (+0.99%).
BRK-A Quote and News
17 Apr 14 09:33:14
$BRKA stock quote, 12:14pm: 190287.00 +1387.00 (+0.73%).
Bruno J. Navarro
17 Apr 14 08:34:55
Berkshire Hathaway's 'ridiculously cheap' option: Pro http://t.co/6IPHYwAl0U $PDCE $BRKA $BRKB $SNDK — via @jmorganteen
BRK-A Quote and News
17 Apr 14 08:33:25
$BRKA stock quote, 11:18am: 189775.00 +875.00 (+0.46%).
Market Bull
17 Apr 14 07:54:01
There it is. $BRKA 52wk high $190,015.00
BRK-A Quote and News
17 Apr 14 07:33:23
$BRKA stock quote, 10:17am: 189630.00 +730.00 (+0.39%).
Market Bull
17 Apr 14 06:51:28
$BRKA on the brink of cracking $190,000
Market Bull
17 Apr 14 06:43:39
$BRKA logged in a fresh 52wk high at the cheap price of $189,440.00. What do you say to that?….it's Buffett.
Chris Veros
16 Apr 14 20:10:51
RT @DividendGrowth: Warren Buffett is now working for me http://t.co/6oQmIfKX7Q $BRKA $BRKB @WarrenBuffett #investing
BRK-A Quote and News
16 Apr 14 13:33:36
$BRKA stock quote, Apr 16: 188900.00 +3260.00 (+1.76%).
BRK-A Quote and News
16 Apr 14 12:33:25
$BRKA stock quote, 3:13pm: 188481.00 +2841.00 (+1.53%).
BRK-A Quote and News
16 Apr 14 11:33:32
$BRKA stock quote, 2:17pm: 188388.00 +2748.00 (+1.48%).
BRK-A Quote and News
16 Apr 14 10:33:35
$BRKA stock quote, 1:18pm: 188085.6562 +2445.6562 (+1.32%).
BRK-A Quote and News
16 Apr 14 09:33:34
$BRKA stock quote, 12:18pm: 188505.00 +2865.00 (+1.54%).
BRK-A Quote and News
16 Apr 14 08:33:34
$BRKA stock quote, 11:16am: 188000.00 +2360.00 (+1.27%).
David Durand
16 Apr 14 07:48:14
Foreign mostly beating domestic today by big margin $EWI $EWJ $DXJ except $BRKA $BRKB $VPL $FXI except gas stks $FCG except US housing $ITB
BRK-A Quote and News
15 Apr 14 13:33:32
$BRKA stock quote, Apr 15: 185640.00 +2428.00 (+1.33%).
BRK-A Quote and News
15 Apr 14 12:33:26
$BRKA stock quote, 3:17pm: 185418.00 +2206.00 (+1.20%).
BRK-A Quote and News
15 Apr 14 11:33:33
$BRKA stock quote, 2:17pm: 184945.00 +1733.00 (+0.95%).
BRK-A Quote and News
15 Apr 14 10:33:32
$BRKA stock quote, 1:15pm: 183887.00 +675.00 (+0.37%).
BRK-A Quote and News
15 Apr 14 08:33:48
$BRKA stock quote, 11:05am: 184176.4844 +964.4844 (+0.53%).
Naomi Frances
15 Apr 14 08:24:54
@tradespoon http://t.co/j3wQfe1auv $BRKA next? NY AG needs to show equality - look at ALL MLMs - appearance of fairness. Pay up citizen.
Naomi Frances
15 Apr 14 07:39:47
@acardenasfx @WorldMoneyNews what shape is Berkshire's MLM? http://t.co/7AJV2Z6M8F $HLF $BRKA
Naomi Frances
15 Apr 14 07:38:55
@EGN_Pro http://t.co/7AJV2Z6M8F $BRKA too?
Naomi Frances
15 Apr 14 07:38:40
@acardenasfx @WorldMoneyNews http://t.co/7AJV2Z6M8F $BRKA
BRK-A Quote and News
15 Apr 14 07:33:50
$BRKA stock quote, 10:17am: 184995.00 +1783.00 (+0.97%).
BRK-A Quote and News
14 Apr 14 12:33:44
$BRKA stock quote, 3:17pm: 182012.00 -747.50 (-0.41%).
BRK-A Quote and News
14 Apr 14 11:33:49
$BRKA stock quote, 2:09pm: 183175.00 +415.50 (+0.23%).
BRK-A Quote and News
14 Apr 14 10:34:23
$BRKA stock quote, 1:17pm: 183050.00 +290.50 (+0.16%).
mj
14 Apr 14 09:38:08
$ghc and $brka deal was timed so that it could be voted on at upcoming annual meetings.
BRK-A Quote and News
14 Apr 14 09:33:46
$BRKA stock quote, 12:15pm: 182927.00 +167.50 (+0.09%).
BRK-A Quote and News
14 Apr 14 08:34:28
$BRKA stock quote, 11:19am: 182880.00 +120.50 (+0.07%).
BRK-A Quote and News
14 Apr 14 07:33:39
$BRKA stock quote, 10:17am: 183200.00 +440.50 (+0.24%).
				
				
  +Follow August 29, 2013 9:24AM
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