Podcast Beta
Questions and Answers
On August 28th, Warren Buffett's birthday present arrived early this year, just two days before he turned ______.
94
Berkshire Hathaway became the eighth American company to reach a market value of $______ trillion.
1
Berkshire's class-A shares now cost $______, which is significantly higher than when Buffett took control in 1965.
715000
Between 2009 and 2023, Berkshire’s annual return averaged ______%, compared with 15% for the S&P 500.
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In 2023, Berkshire Hathaway brought in sales of $______ billion.
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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 significant milestone achieved by Berkshire Hathaway as it reached a market value of $1 trillion shortly before Warren Buffett's 94th birthday. This quiz delves into the impact of Buffett's leadership and the historical significance of this achievement in corporate America.
