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Why Buffett's Gifts Will Only Get Bigger

Warren Buffett

On Monday, Berkshire Hathaway  (NYSE: BRK-B  ) (NYSE: BRK-A  ) CEO Warren Buffett just gave a total of 22,870,529 Class B shares of Berkshire Hathaway stock to five different charitable foundations, worth nearly $2.63 billion dollars based on today's closing price of $114.88 per share.

Of course, this shouldn't come as a surprise, especially considering Buffett promised years ago he would gradually give away the bulk of his fortune to those five charities, beginning in July 2006 with 602,500 total shares of Berkshire Hathaway stock. Most notably, 500,000 of those shares would go to the Bill and Melinda Gates Foundation.

Then, with each passing year, Buffett said he would decrease the number of shares by 5%.

What's changed
That said, if you're wondering why that "decreasing by 5%" math doesn't stack up with the number of shares Buffett just gave away this July, note a few things have changed since then.

First, shortly after Berkshire's acquisition of Burlington Northern Santa Fe was announced in late 2009, Berkshire shareholders approved a 50 for 1 split in their Class B shares, largely to make it easier for smaller BNSF shareholders to opt for the tax-free exchange into Berkshire Hathaway stock if they so chose.

Short of simply splitting up the Class B pie into smaller slices, then, this was a zero-sum game that didn't otherwise affect the value of Buffett's charitable contributions.

Second, as fellow Fool Justin Loiseau noted Monday, Buffett last year decided to double the amount of stock he would give each year to his children's foundations (which collectively account for three of the five aforementioned organizations) after he was pleased with the work they were doing.

Why smaller is bigger
Putting share price semantics aside, though, there's one big reason less is more when it comes to Buffett's giving.

Despite the fact that The Oracle is methodically reducing the number of shares he gives away each year by 5%, take a look what Berkshire Hathaway stock has done since he announced his selfless pledge in late June of 2006:

 berkshire hathaway stock, BRK.B Total Return Price Chart

BRK.B Total Return Price data by YCharts.

Wouldn't you know it? Berkshire Hathaway stock -- the performance of which is directly influenced by the greatest investor in the world -- has risen almost 89% since then, outpacing the S&P 500's perfectly respectable total return by more than 35%.

Then again, you can bet Buffett already knew Berkshire's gains would almost certainly have little trouble offsetting the 5% annual decline in the number of shares he was giving, anyway. And for those of you familiar with the high-quality plethora of operating segments that make up the enormous conglomerate that is Berkshire Hathaway, there's little reason to believe Berkshire Hathaway stock won't be able to continue its long-term streak of outperformance.

That, my Foolish friends, is why Buffett's predictable annual gifts will only get bigger as time goes on.

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Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 11, 2013, at 9:45 AM, jthokie4 wrote:

    Hey Buffet, if you have too much money, why don't you help out the masses by cutting the prices of the products you sell, such as insurance? Just a thought...

  • Report this Comment On July 11, 2013, at 10:22 AM, sewweary wrote:

    A charitable donation is really needed here. No job, no insurance, mouths to feed...$1600 a month to the bank on a house that should be torn down...I sew to make ends meet...

  • Report this Comment On July 11, 2013, at 1:57 PM, Waseem80 wrote:

    Why should he cut the price of Insurance or other products?? Business is business, and a cup of tea is a cup of tea.

  • Report this Comment On July 12, 2013, at 11:01 AM, Seanickson wrote:

    I believe Berkshire will do well over time, but who knows what will happen over a short period such as a few years. If profit margins retract and the market falls, Berkshire will be no exception and the value of the gifts may very well decline for some time.

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9/28/2016 4:00 PM
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