Podcast Beta
Questions and Answers
What significant market value did Berkshire Hathaway reach just before Warren Buffett's birthday in 2023?
$1 trillion
In comparison to Berkshire Hathaway's annual return of 13% from 2009 to 2023, what was the annual return of the S&P 500 during the same period?
15%
According to Warren Buffett, what factor contributed to the difficulty in achieving higher performance for Berkshire Hathaway?
Size
What was the profit that Berkshire Hathaway reported in 2023 on its preferred operating measure?
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What would have happened to an investment of $200,000 in Berkshire shares ten years ago, in terms of financial growth?
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Study Notes
Berkshire Hathaway's Milestone
- On August 28, just before Warren Buffett's 94th birthday, Berkshire Hathaway reached a market value of $1 trillion.
- This achievement positions Berkshire as only the eighth American company to achieve a $1 trillion valuation, and the first from the Midwest.
- Class-A shares are valued at $715,000, representing a 55,000-fold increase since Buffett took control of the company in 1965.
Performance Comparison
- The total return of the S&P 500 has grown 400-fold since 1965, contrasting with Berkshire's remarkable share price growth.
- A $200,000 investment in Berkshire shares ten years ago would have tripled in value, outperforming average U.S. housing appreciation, which doubled in the same timeframe.
- Investing in Apple, comparable to Berkshire's investment in 2016, would yield nearly double the return over the same period.
Returns and Market Context
- From 2009 to 2023, Berkshire's average annual return was 13%, slightly lower than the S&P 500’s 15%.
- Buffett has acknowledged the company’s inability to achieve extraordinary performance, attributing challenges to its size.
Operational Scale and Challenges
- Berkshire Hathaway operates major businesses, including BNSF (second-largest freight railway), GEICO (third-largest auto insurer), and one of the largest electric utilities.
- The conglomerate employs nearly 400,000 people but is hampered by its size, making substantial growth more challenging.
- In 2023, Berkshire generated $360 billion in sales and reported $37 billion in profit.
Investment Strategy and Issues
- Buffett's strategy involves acquiring good businesses and allowing solid management to run them, but this approach is becoming less effective with size.
- The 2016 acquisition of Precision Castparts for $32 billion is viewed as unsuccessful, and a partnership with Kraft-Heinz has yielded disappointing results.
- Berkshire’s public stock portfolio, excluding Apple, increased only 50% since early 2019, lagging behind the S&P 500's 120% growth.
Sector and Digital Transformation
- Tech giants like Apple and Microsoft generate roughly three times the profits of Berkshire, highlighting a significant performance gap.
- Berkshire is perceived as outdated, with a reluctance to embrace digital innovations and new technologies that could enhance operational efficiency.
- Competitors like Microsoft and Amazon dominate the modern landscape, driving a shift in market dynamics that Berkshire is slow to navigate.
Governance and Future Outlook
- Berkshire’s corporate governance is seen as antiquated, with board members averaging 68 years in age and minimal shareholder engagement.
- Buffett’s hands-off approach to significant organizational moves is expected to transition to Greg Abel, his designated successor.
- With nearly $280 billion in cash reserves and no debt, concerns grow over the lack of strategic investment opportunities and the company’s refusal to distribute dividends.
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Description
Explore the remarkable journey of Warren Buffett and his company, Berkshire Hathaway, which recently celebrated a market value of $1 trillion. This quiz delves into the milestones of Buffett's career and the company's unique position in the American corporate landscape.
