Berkshire Hathaway Stock Review (BRK.A and BRK.B)

What do you think whenever Berkshire Hathaway is mentioned in any context? If you’re like most people, you don’t think about the business; you think of Warren Buffett. The investment guru, long nicknamed the “Oracle of Omaha,” was instrumental in transforming the company into a global investment giant.

But it wasn’t always this way: In fact, some people might be surprised to learn that Berkshire Hathaway existed long before Buffett was born, albeit under a different name.

Before the investment guru took over, it was a textile manufacturing company.

But today the company is one of the most lucrative listings on the NYSE, with its Class B shares in the top 5 of the S&P 500 Index.

Additionally, thanks to Buffett, the company has never done a stock split and has no plans to do so. They have also never paid dividends to their shareholders in their history as an investment company. TThese conditions contribute to the idiotic value of the company’s Class A shares, which stood at more than $300,000 at the end of 2019.

So how did Berkshire get here? How did they move from textiles to investing and how has their stock increased over the years? Let’s get started.

Berkshire Hathaway – The Company

Berkshire Hathaway was established in 1839 by Oliver Chace.

At the time it was known as the Valley Falls Company, due to its establishment in Valley Falls, Rhode Island. Nine decades later, Chace agreed to a merger with another textile mill known as the Berkshire Cotton Manufacturing Company.

After the merger, the resulting company changed its name to Berkshire Fine Spinning Associates. In 1955, another merger took place, this time with Hathaway Manufacturing Company, led by Seabury Stanton.

Now known as Berkshire Hathaway, the company had about 12,000 people in 15 factories and had revenues of more than $120 million.

With the decline of the textile industry, this success did not last very long and by 1960, half of these factories had been closed.

Warren Buffet and Berkshire Hathaway – The Journey

Warren Buffett began purchasing shares of Berkshire Hathaway in 1962 through his company, Buffett Partnership, Ltd. He did this thinking that stocks would eventually rally.

After realizing that this was not going to be the case, he verbally agreed to sell his shares back to the company at a price of $11½ per share.

However, after a dishonest decision by CEO Stanton to pay him $11⅜ per share instead, Buffett was unhappy.

Warren Buffet, the investor, not only refused the deal, but he also started buying more shares of the company until he got a majority stake, and then he fired Stanton.

Buffett also changed the name of this investment company to Berkshire Hathaway to position itself as a diversified holding company.

At first, Mr. Buffet tried to retain the company’s core textile operations, but ultimately Berkshire’s last factory closed in 1985. But by that time, Berkshire Hathaway had already diversified into various other industries.

Some of the new-look company’s first investments were in the insurance industry when it purchased National Indemnity Company and Government Employees Insurance Company (GEICO) in the 1970s and 1985 respectively.

Since then, Berkshire has grown into a huge multinational holding company. It has majority stake or full ownership of businesses in retail, furniture, electricity and gas, confectionery, jewelry, manufacturing, etc.

The company has significant minority stakes in major companies like Apple, The Coca-Cola Company, Bank of America, Wells Fargo, American Express, etc.

Berkshire has full ownership of GEICO, NetJets, BNSF, Duracell, Dairy Queen, Fruit of the Loom and Pampered Chef, among others.

The company also has significant stakes in some major airlines like Delta Airlines, American Airlines, Southwest Airlines and United Airlines.

Quick note on the Hathaway/Buffet modus operandi

The way Buffett’s mind works when it comes to investing has long been known.

As a testament to his methods, Buffett and his team of like-minded executives drove the company’s success and, in turn, its stock value.

Remember the stock price of $11.50 in 1962? As of January 8, 2020, Berkshire’s stock price was $339,188. This makes them the most valuable stocks listed on the NYSE.

This success is based on what we like to call the Buffett/Hathaway modus operandi. It has three elements: long-term investors, no stock splits, and a founder-centric management style.

Warren Buffet and value investing – Berkshire Hathaway

Berkshire Hathaway’s immense means of growth have been made possible by Buffett’s strict adherence to value investing and the fact that Berkshire Hathaway’s stock is structured to attract only very long-term investors.

The holding company has never done a stock split of its Class A shares and has only paid a dividend once since Warren Buffett.

This allowed the company to keep Berkshire’s profits on its balance sheet, something mutual funds are not allowed to do.

Even though Buffett and Hathaway don’t like paying dividends, they certainly like receiving them.

With the class B shares (dividend shares) that it holds in various companies, Berkshire has garnered dividends worth $3.8 billion in 2018 alone. Some of the companies that pay a dividend to Berkshire include PNC Financial, JP Morgan Chase, Store Capital, Wells Fargo, General Motors, Kraft Heinz, and Suncor Energy, among others.

So, in addition to favoring long-term investors and not splitting Class A stocks, Buffett is also known for his “founding centrism.”

This investment method involves respect and preference for leaders with a founder’s spirit, a passion for creating extreme value and an ethical responsibility to shareholders.

Berkshire Hathaway Class A Shares (BRK.A)

At first glance, it is clear that Berkshire Hathaway shares are the best performing stock on the New York Stock Exchange and have the highest share price ever recorded.

Since 1965, the company has maintained an average annual growth of 19% in book value for its shareholders.

While the company’s Class A (BRK.A) shares are the most expensive in the world, its Class B shares occupy the fifth position in the S&P 500.

In 1985, the year Berkshire closed its last textile mill, the company’s Class A shares opened at $1,275 and closed at $2,470. This represents an impressive growth of 93.73%. What’s even more remarkable is the fact that this is a year of abrupt transition for the company.

Although Hathaway’s stock price has since soared to dizzying heights, 1985 remains the year with the highest percentage growth.

Over the years, the company has had some difficult years. They closed below their stock opening prices from 1990, 1999, 2008 and 2015. But, thanks to their refocus on value investing and long-term growth, the company almost always came out on top.

Berkshire Hathaway Class A Shares (BRK.A) – Quick Turnarounds

In 1981, Berkshire Class A shares opened at $425 and closed at $560. In 2019, it opened at $304,057 and closed at $339,590.

This represents a 40-year growth of 60,541.07%.

Nothing like this has ever happened in the history of traditional investing and the stock market.

A brief timeline of Berkshire Hathaway Class A Share Milestones:

• The Class A stock price topped $1,000 for the first time in May 1983.

• Nine years later, in November 1992, the stock price exceeded $10,000 for the first time as the company’s market valuation reached $14.9 billion.

• In January 1998, the stock price exceeded $50,000 for the first time, and the market value rose to $76.4 billion.

• In October 2006, the BRK.A share price exceeded $100,000 for the first time. The company’s market value reached $162.6 billion

• In August 2014, the stock price exceeded $200,000 for the first time, and the company’s market value reached $338.2 billion.

• In December 2017, the stock price exceeded $300,000 for the first time. The company’s market value reached $489.4 billion

As is now clear, 2020 was not a kind year for many, if any, businesses due to the global coronavirus pandemic and its impact on the global economy. As of April 3, 2020, Berkshire Class A shares closed at $267,954.

Berkshire Hathaway Class N Shares (BRK.B)

Over the past 24 years, Berkshire Hathaway Class B shares (BRK.B) have also performed well over the years. It also has reputable shareholders. One of them would be the Bill and Melinda Gates Foundation, which owns 4.0% of the company’s total Class B shares.

In 1997, BRK.B opened at $21.94 and closed at $30.78 (also its highest percentage growth rate of 38.40%).

In 2019, it opened the year at 202.8 and closed at 226.50. For this 24-year period, the value of BRK.B increased by 635.87%.

Consistent with the circumstances of Class A shares and most other stocks on the NYSE, the value of BRK.B has seen an overall decline since the beginning of 2020. As of April 3, 2020, Class B shares closed at $178.34.

Of course, there is no data on dividend history, growth, or yield because Berkshire Hathaway does not pay dividends to its shareholders.

Conclusion

In 2018, the company had revenue of $247.5 billion, with profit of $4.02 billion, while controlling a total asset value of $707.8 billion.

As a practical matter, it’s probably too late for anyone, primarily retail investors, to buy Berkshire Hathaway stock. However, Buffett’s methods are worth studying for future opportunities, after all, he is a legend when it comes to wealth creation and investments.