Few stocks have performed as well as Berkshire Hathaway (BRK.A 0.24%)(BRK.B 0.38%). Since 1965, shares have increased in value by nearly 4,000,000%! A $10,000 investment would now be worth more than $350 million.
The man who made these tremendous returns possible -- Warren Buffett -- is still at the helm. But does that make the stock a buy today?
NYSE: BRK.B
Key Data Points
This is how Berkshire has changed since 1965
The returns you see from Berkshire's long-term history are eye-popping. But are they still relevant? The truth is that the vast majority of Berkshire's returns occurred very early in its history.
In the 1980s, for example, Berkshire stock rose by more than 30% in a single year six times. In 1985, shares nearly doubled in value. Over the most recent decade, however, Berkshire stock didn't have a 30% return in a calendar year.
To be fair, Berkshire stock has still done quite well in recent decades. But the truth is that, in general, its rate of growth has slowed dramatically. That doesn't mean it's a bad investment today, but don't expect 4,000,000% returns from this stock ever again. It's simply too large to post massive gains like that. For the stock to even rise 400%, it would need to become the largest publicly traded stock in the world.
Today, Berkshire is a massive conglomerate. It owns businesses that operate across every continent and include some of the largest competitors in major sectors like energy, financials, and technology. It owns, for example, $165 billion worth of Apple shares alone. To move the needle, Berkshire needs to put huge sums of money to work, limiting the universe of businesses that it can invest in. "The highest rates of return I've ever achieved were in the 1950s," Buffett told investors back in 1999. "I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money."
As we'll see, Berkshire stock may still be a buy but for a different reason than it has been in the past.
Don't just bet on Warren Buffett
Right now, Warren Buffett is 93 years old. By all accounts, he's quite healthy and active in the business. But to bet on Berkshire stock long term, you must be confident in more than just Buffett's investing acumen.
Fortunately, Buffett has put an incredible investment team together -- with notable names including Todd Combs and Ted Weschler -- that has increasingly overseen larger and larger parts of Berkshire's portfolio. According to the Financial Times, it was either Combs or Weschler who initiated Berkshire's Apple position, one of its most successful bets in recent years.
But due to Berkshire's gargantuan size, a long-term bet on Berkshire today will hinge more on efficient asset allocation than superstar bets. It's good news, then, that Buffett's succession plans include not just proven investors like Combs and Weschler, but veteran business executives like Greg Abel and Ajit Jain.
Abel became CEO of MidAmerican (later renamed Berkshire Energy) in 2008, and has been the vice president on non-insurance operations since 2018. He is expected to eventually take over as CEO. Jain, meanwhile, will likely retain his role of overseeing Berkshire's insurance operations. He left McKinsey in 1986 to work with Buffett in the company's insurance segment. Both Abel and Jain have had years, if not decades to prove themselves to Buffett. And all signs point to the pair, plus Combs and Weschler, as being Berkshire's main decision makers of the future.
Berkshire stock isn't historically cheap at 1.6 times book value. And the company's returns in recent years have been far lower than in decades past. But the company's performance continues to match or exceed the returns of the S&P 500. Don't expect this stock to make you a millionaire overnight, but it still makes sense for patient investors looking to diversify their portfolio with high-quality businesses run by proven managers.
