Warren Buffett was born in 1930, right in the middle of the Great Depression. He bought his first stock at just 11 years of age, and by 1965, he was operating his own investment company Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%), which he still runs today.
Buffett has successfully navigated every post-Depression crisis, and he has created value for his investors through every evolution of the U.S. economy. He watched General Motors become the world's most valuable company in 1955 when it amassed a $10 billion market capitalization. He was also around when General Electric snatched that title with a $100 billion valuation in 1995.
Today, Berkshire is one of the largest single investors in tech giant Apple (AAPL -0.35%), which became the world's first $1 trillion company in 2018. Apple has since been joined by tech companies Microsoft, Amazon, Google parent Alphabet, and Nvidia, which have all amassed valuations of $1 trillion or more.
Shares of Buffett's Berkshire Hathaway are currently trading near an all-time high, valuing the investment company at $775 billion. Here's why it could soon join the exclusive trillion-dollar club.
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Berkshire has a history of outperforming the broader stock market
Berkshire Hathaway was originally a textiles company when it was founded in 1929. Buffett acquired a controlling stake in 1965 when it was going through a rough patch, and after determining the business was no longer viable, he converted it into a holding company.
It has served as Buffett's main investment vehicle ever since, and it now owns 56 different publicly traded stocks and securities in its portfolio worth a combined $354 billion. Apple stock accounts for 46.5% of that value, and American Express is Berkshire's next-largest holding, representing 8.4% of the portfolio.
But Berkshire also wholly owns several private businesses, including insurance company Geico and consumer businesses like Dairy Queen and Duracell.
In the 57 years between 1965 and 2022, Berkshire Class A stock has delivered a mind-boggling compound annual return of 19.8%, which is more than double the 9.8% annual return of the S&P 500 index. In other words, a $1,000 investment in Berkshire Hathaway stock in 1965 would be worth a whopping $29.6 million today.
Berkshire owes its success to Buffett's steadfast approach to investing. He likes to own profitable businesses generating plenty of cash, and he's particularly fond of those returning money to shareholders. Apple is a great example; since Berkshire bought its first share in the company in 2016, Apple has spent $507 billion on stock buybacks and paid out a further $107 billion in dividends to its shareholders.
But time is Buffett's favorite weapon. When he buys a stock -- or an entire business -- he typically intends to own it for the ultra-long term, if not forever.
Berkshire is a cash-generating machine
Berkshire has come a long way since Buffett transformed the company. It brought in $49 million in revenue during 1965, and in 2022, that figure was a whopping $302 billion. Sales and services from the firm's portfolio of businesses made up more than half of that total, with a $74 billion contribution coming from insurance premiums and a further $25 billion coming from its freight rail transportation business.
But Berkshire generated a rare loss of $22.8 billion on the bottom line last year, which was a big swing from its $89.7 billion in net income in 2021. The loss was driven by the broad decline in the stock market, with Berkshire suffering a $67.8 billion fall (on paper) in the value of its securities holdings.
But its fortunes have certainly reversed in 2023 thanks to the surging rally in stocks across the board. In the first six months of the year, Berkshire has already generated $71.4 billion in earnings. If it carries that momentum into the second half, 2023 could be another record year of profitability for the company.
Here's how soon Berkshire could join the $1 trillion club
As mentioned already, Berkshire Hathaway currently has a market capitalization of $775 billion. That means its stock price only needs to rise by 29% from where it trades now for the company to surpass a $1 trillion valuation. Considering the stock has a 57-year track record of growing by 19.8% annually, it could achieve that milestone within the next two years.
But history aside, Berkshire is also spending billions of dollars each quarter to repurchase its own stock. It reduces the number of Berkshire shares in circulation, which organically lifts the company's valuation. As my Motley Fool colleague Sean Williams points out, Berkshire has repurchased $71 billion worth of its stock in the last five years alone!
If Berkshire stock is good enough for Buffett to continue buying hand over fist, then it's likely good enough for most investors. Its eventual admission into the $1 trillion club appears to be a foregone conclusion, and it could become the first non-technology company in the U.S. to achieve that feat.
