Berkshire Hathaway Stock Hits a Quarter-Million Dollars a Share: These 3 Acquisitions Got It There

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The combination of compound growth and time can produce some extraordinary results. On Tuesday, Warren Buffett's compounding machine, Berkshire Hathaway Inc. (BRK.A 1.18%) (BRK.B 1.30%), produced (more) evidence of this, as the stock passed another milestone: The 'A' shares were quoted intraday at over $250,000 (yes, per share).

The following table charts the stock's remarkable rise through a geometric progression of round numbers, beginning with $100 through $100,000:

Based on data from CRSP US Stock Database©2009 Center for Research in Security Prices (CRSP), The University of Chicago booth School of Business.

One observation that leaps out of the table is that Berkshire's annualized returns have fallen with orders of magnitude in the share price. (A different way to state this is that it has taken longer and longer to add each successive zero to the end of the stock price.) That's an inevitable phenomenon that management has long been warning its shareholders would occur. On March 3, 1983 -- less than six months before the stock reached $1,000 -- Buffett wrote to his shareholders in his annual letter:

During the 18-year tenure of present management, book value has grown from $19.46 per share to $737.43 per share, or 22% compounded annually. You can be certain that this percentage will diminish in the future. Geometric progressions eventually forge their own anchors.

Here, Buffett refers to per-share book value as measure of intrinsic value; over time, the progression in the stock price has tracked that of per-share book value closely, as the following figures from the 2015 Annual Report (summarizing more than a half-century of operations) show:

Source: Berkshire Hathaway

(And note, of course, the huge outperformance relative to the S&P 500!)

Another consequence of the mathematics of geometric progressions for Berkshire Hathaway is that the largest acquisitions did and continue to do a lot of the heavy lifting in terms of increasing intrinsic value and, hence, the share price. These are also likely to be the most recent. As Buffett noted in his most recent annual letter [italics for emphasis are mine]:

BNSF is the largest of our "Powerhouse Five," a group that also includes Berkshire Hathaway Energy, Marmon, Lubrizol and IMC. Combined, these companies -- our five most profitable non-insurance businesses -- earned $13.1 billion in 2015, an increase of $650 million over 2014. Of the five, only Berkshire Hathaway Energy, then earning $393 million, was owned by us in 2003.... Next year, I will be discussing the "Powerhouse Six." The newcomer will be Precision Castparts Corp. ("PCC"), a business that we purchased a month ago for more than $32 billion of cash.

The following three acquisitions (two of which were acquired since the shares passed the $100,000 mark) were instrumental in Berkshire's growth:

October 1999: MidAmerican Energy Holdings Company

At the height of the dot-com bubble, Berkshire announced its first foray in the power sector with the purchase of Des Moines, Iowa-based utility MidAmerican Energy at an equity value of approximately $2 billion.

MidAmerican became the basis for Berkshire Hathaway Energy, which went on to make some large bolt-on acquisitions: PacifiCorp in 2005 ($5.1 billion), and NV Energy Inc. in 2013 ($5.6 billion).

The acquisition of MidAmerican marked an important shift in Buffett's willingness to invest in regulated, capital-intensive businesses for the promise of an stable economic return. In 2015, Berkshire Hathaway Energy contributed $2.1 billion in earnings to its parent, roughly 9% of Berkshire Hathaway's $24.1 billion in consolidated earnings.

November 2009: Burlington Northern Santa Fe

Railroad operator Burlington Northern Santa Fe (BNSF) is the other large regulated, capital-intensive business that Berkshire owns. BNSF was (and remains) the largest acquisition in Berkshire's history, at an equity valuation of $34 billion.

Last month, Bloomberg noted that BNSF had paid Berkshire aggregate dividends totaling $22 billion since the acquisition closed in early 2010; BNSF's net earnings were $4.2 billion in 2015.

August 2015: Precision Castparts Corp.

At the end of January, Berkshire Hathaway completed the acquisition of complex metal components manufacturer Precision Castparts Corp. (PCC) for a total consideration of $32.7 billion. Operating in oligopolistic sectors supplying the aerospace, power, and oil & gas industries through long-term contracts, "PCC fits perfectly into the Berkshire model and will substantially increase our normalized per-share earning power" (per Buffett).

In its fiscal 2015, which ended March 29, 2015, PCC earned $1.5 billion.

Where next?

All three businesses will contribute significantly to the growth in Berkshire Hathaway's cash earnings and per-share intrinsic value for years to come. The businesses that will make an every greater impact are (likely) just mentions on Warren Buffett's Christmas wish list right now: Berkshire ended the month of September with cash and equivalents exceeding $84 billion, an amount grows larger every month that Mr. Buffett goes without bagging an "elephant." (It was $72 billion at the start of the year.)

Personally, I've long thought Berkshire ought to buy Japanese industrial robot manufacturer FANUC, which has a market capitalization of $36 billion.