Warren Buffett was born in 1930 at the outset of the Great Depression. He purchased his first stock at age 11, and by 1965, he was operating his own investment company, Berkshire Hathaway (BRK.A 0.68%)(BRK.B 0.53%). He still runs the company today.
Berkshire holds an incredible portfolio of public and private companies, and it has successfully navigated every post-Depression crisis to significantly outperform the benchmark S&P 500 over the last 58 years.
Berkshire's largest holding today is Apple, which became the world's first $1 trillion company in 2018. Since then, Microsoft, Amazon, Alphabet (parent company of Google), and Nvidia have all amassed trillion-dollar valuations of their own.
Thanks to Buffett's leadership, Berkshire is now valued at $772 billion, and its stellar track record suggests it could soon become the first non-technology company in the U.S. to join the $1 trillion club. Here's why it could become a $1 trillion company as soon as 2024.
Image source: The Motley Fool.
Buffett's recipe for success
Buffett is a value investor. He looks for profitable companies with consistent growth and strong management teams, and he especially likes those returning money to shareholders through dividends and stock buybacks.
He waits patiently to grab those opportunities at a reasonable price. You won't find him chasing the latest stock market trends; in fact, he's often deploying billions of dollars when most other investors are selling.
However, Buffett's most powerful weapon is time. He buys stocks with the intention of holding for decades, which allows the effects of compounding to build his wealth for him. The companies he owns grow larger over time, and so do the dividends.
For example, Berkshire invested $1.3 billion in Coca-Cola between 1988 and 1994, acquiring 400 million shares, which it still owns today. Coca-Cola paid Berkshire a dividend of $75 million in 1994 -- in 2022, that dividend payment had swelled to $704 million! Not to mention the incredible capital growth; Berkshire's 400 million Coca-Cola shares are now worth $23.6 billion.
From the brink of failure to a financial juggernaut
Berkshire Hathaway was founded as a textiles company in 1929, and Buffett acquired a controlling stake in 1965 when it was going through a rough patch. He quickly realized Berkshire's core business was no longer viable, so he turned it into a holding company for his various investments.
Today, it owns 51 different publicly traded stocks and securities worth a combined $365 billion, and Coca-Cola is just one of many success stories. The following are equally noteworthy:
- American Express: Berkshire owns a 20% stake in the credit card giant, valued at $25.5 billion. But it all started with a $1.3 billion investment in the lead up to 1995, and today, the firm collects $304 million in dividends (and growing) every year.
- Apple: Berkshire has invested around $35 billion in Apple stock since 2016 -- its largest ever bet. It has paid off handsomely because the stake is currently valued at more than $179 billion, accounting for almost half of the investment company's public portfolio.
Plus, Berkshire wholly owns several successful private businesses like Dairy Queen, Duracell, and GEICO.
Berkshire has a long track record of crushing the market
Buffett has presided over substantial returns for investors. Between the time he acquired a controlling stake in Berkshire in 1965 and the end of 2022, the company's stock had delivered a mind-blowing gain of 3,787,464%.
That translates to a compound annual return of 19.8%, which is twice the return of the benchmark S&P 500 index. That would've been enough to turn a perfectly timed investment of just $100 into more than $3.7 million. The incredible gain comes on the back of a stellar operating performance by Buffett and his team.
Berkshire generated just $49 million in revenue in 1965, and by 2022, that had grown to a whopping $302 billion. Over $157 billion came from sales and services across its various businesses, with an additional $74 billion coming from insurance premiums and $52 billion coming from its railroad, utilities, and energy interests. The company is on track to increase that figure by 19% in 2023, to $360 billion.
Berkshire has delivered positive growth and strong stock returns during 11 different presidencies without straying from Buffett's fundamental strategy. With a presidential election coming up in 2024, that's a great reminder for everyday investors to stay the course, no matter which candidate wins.
NYSE: BRK.A
Key Data Points
Berkshire could join the $1 trillion club in 2024
As I mentioned earlier, Berkshire Hathaway is valued at $772 billion. Therefore, its stock needs to gain about 30% to propel the company into the $1 trillion club. Based on its average annual return of 19.8% since 1965, it doesn't appear likely to get there in 2024.
However, there's a good possibility Berkshire could outperform next year. History suggests 2024 will almost certainly bring more positive returns for the S&P 500, and Apple stock (Berkshire's largest holding) is entering the year near its best-ever level. Plus, some of Berkshire's top income producing stocks like Apple, Coca-Cola, American Express, and Bank of America are currently paying record dividends.
The broader macroeconomic environment will likely be more favorable in 2024, too. According to CME Group's FedWatch tool, the U.S. Federal Reserve is expected to cut interest rates five times throughout the year. That will be great for Berkshire's consumer-focused businesses, and also its transport and logistics segments as lower rates should drive more economic growth.
Finally, as my Motley Fool colleague Sean Williams points out, Berkshire is buying back its own stock hand over fist. It has completed a whopping $72 billion worth of share repurchases during the past five years, so Buffett himself is clearly very bullish on its prospects.
Nevertheless, even if Berkshire doesn't make it into the $1 trillion club in 2024, it's only a matter of time.
