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 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
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.
Edward Barr
20 Oct 14 08:11:15
RT @rationalwalk: Hindsight is 20/20, but sure wish that at least some of funds used to buy $IBM in 2011 were instead used to repurchase $B…
The Rational Walk
20 Oct 14 08:07:48
Marking $BRKA 6/30 13F to market would indicate decline of ~$3.5 billion if no positions changed. Will be interesting to see new 13F.
Bruno J. Navarro
20 Oct 14 07:39:38
Warren Buffett just lost $1B on this stock $IBM $BRKA $WFC $KO
BRK-A Quote and News
20 Oct 14 07:33:35
$BRKA stock quote, 10:16am: 205697.00 +192.00 (+0.09%).
The Rational Walk
20 Oct 14 07:32:46
Hindsight is 20/20, but sure wish that at least some of funds used to buy $IBM in 2011 were instead used to repurchase $BRKA shares instead.
20 Oct 14 05:29:30
People looking at $IBM b/c of $BRKA $BRKB need to wait to see the latter's reaction to the former's asset sale
Ron DeLegge
19 Oct 14 08:20:15
VIDEO: Warren Buffett's favorite asset class (besides stocks) $BRKA $DIA
BRK-A Quote and News
18 Oct 14 09:32:23
$BRKA stock quote, Oct 17: 205505.00 +3504.9062 (+1.74%).
James Muhato
17 Oct 14 15:36:38
Do investors buying $BRKa ever just call up #Buffet asking how there going to take ober the world for the week. #BuffetProblems
Ron DeLegge
17 Oct 14 14:21:10
VIDEO: Warren Buffett's favorite asset class (besides stocks) $BRKA $DIA
17 Oct 14 11:27:42
@HenryPetzold 20% growth & just did $6B in cash flow from Ops in seasonably weak Q. Only 1-2 Co's produce >cash flow... $AAPL & $BRKA
Ron DeLegge
16 Oct 14 14:21:15
VIDEO: Warren Buffett's favorite asset class (besides stocks) $BRKA $DIA
BRK-A Quote and News
16 Oct 14 13:33:53
$BRKA stock quote, Oct 16: 202000.0938 -1799.9062 (-0.88%).
BRK-A Quote and News
16 Oct 14 12:33:25
$BRKA stock quote, 3:17pm: 202396.00 -1404.00 (-0.69%).
BRK-A Quote and News
16 Oct 14 11:33:21
$BRKA stock quote, 2:16pm: 202600.00 -1200.00 (-0.59%).
BRK-A Quote and News
16 Oct 14 10:36:10
$BRKA stock quote, 1:11pm: 202669.00 -1131.00 (-0.55%).
BRK-A Quote and News
16 Oct 14 09:34:27
$BRKA stock quote, 12:05pm: 201525.00 -2275.00 (-1.12%).
BRK-A Quote and News
16 Oct 14 08:34:47
$BRKA stock quote, 11:15am: 202244.00 -1556.00 (-0.76%).
BRK-A Quote and News
16 Oct 14 07:34:04
$BRKA stock quote, 10:14am: 200682.2188 -3117.7812 (-1.53%).
Ron DeLegge
15 Oct 14 14:21:11
VIDEO: Warren Buffett's favorite asset class (besides stocks) $BRKA $DIA
BRK-A Quote and News
15 Oct 14 13:34:56
$BRKA stock quote, Oct 15: 203800.00 -2225.00 (-1.08%).
BRK-A Quote and News
15 Oct 14 12:33:51
$BRKA stock quote, 3:18pm: 201512.00 -4513.00 (-2.19%).
The Rational Walk
15 Oct 14 11:52:21
Looks like there isn't much of a $BRKB discount and much higher than normal $BRKA volume.
BRK-A Quote and News
15 Oct 14 11:33:35
$BRKA stock quote, 2:18pm: 200716.1562 -5308.8438 (-2.58%).
15 Oct 14 11:01:41
RT @DividendGrowth: Build your own Berkshire with dividend paying stocks $BRKA $BRKB $JNJ $MCD $CVX $PEP #dividends
Andrea Riquier
15 Oct 14 10:50:44
$BRKa back under $200,000. bummer.
BRK-A Quote and News
15 Oct 14 10:35:58
$BRKA stock quote, 1:20pm: 200002.00 -6023.00 (-2.92%).
rich tutching
15 Oct 14 10:26:06
Berkshire Hathaway agrees to buy fifth-largest car dealer in U.S. $BRKA
Eric McWhinnie
15 Oct 14 10:19:38
How many points does the Dow have to plunge before Warren Buffett appears on cnbc? $BRKA $BRKB
BRK-A Quote and News
15 Oct 14 09:33:53
$BRKA stock quote, 12:18pm: 201000.0469 -5024.9531 (-2.44%).
BRK-A Quote and News
15 Oct 14 08:33:50
$BRKA stock quote, 11:17am: 202606.00 -3419.00 (-1.66%).
BRK-A Quote and News
15 Oct 14 07:33:38
$BRKA stock quote, 10:17am: 203318.00 -2707.00 (-1.31%).
The Rational Walk
14 Oct 14 14:46:28
No clue whether bear market is coming up or not, but do know that $BRKA wouldn't be spared. But valuation is still fine esp rel to S&P 500.
The Rational Walk
14 Oct 14 14:45:21
Just thought I'd make observation b/c short term money flowing into $BRKA in fall of '08 wasn't spared in subsequent bear market.
The Rational Walk
14 Oct 14 14:43:52
Long term $BRKA investors can just focus on reasonable valuation & not pay attention to overall market. Probably the wisest attitude to have
The Rational Walk
14 Oct 14 14:42:57
$BRKA appears to have benefited from some type of flight to safety recently. Pleasant enough but same was true in early fall of 2008!
Bruno J. Navarro
14 Oct 14 07:54:18
Warren Buffett's stock pickers are crushing it $BRKA
Damian Bayona
14 Oct 14 06:47:09
Can Buffet #brand associations extend to $BRKA? Putting the Berkshire Brand Before #WarrenBuffett via @NYTNow
Jon Fedor
14 Oct 14 06:16:33
Incredible story about #buffet and #benjaminmoore and the trials of #leadership. Gotta read this: #fortune $brka
13 Oct 14 23:31:51
Au milieu de la correction boursière actuelle, les valeurs qui résistent sont les Big Caps rentables et au large cash flows : $AAPL, $BRKA
Stephen Foley
13 Oct 14 14:23:44
FT reader: "Why would Buffett allow the $BRKA name to be dragged into daily battles between landlords and renters?"
The Rational Walk
13 Oct 14 13:19:17
$BRKA and $MKL both are holding up well vs. market, not that it matters much (or at all), but could be influencing overall attitude.
  +Follow August 29, 2013 9:24AM