Numbers dive: Warren Buffett's performance is even more amazing than you think
Today, let’s have some fun with numbers. Specifically, with some of the numbers in Berkshire Hathaway’s new annual report to its shareholders.
As usual, the report has gotten tons of attention from the media because it contains a long, discursive annual letter from legendary investor Warren Buffett, who took control of Berkshire (BRK-A) (BRK-B) in 1965 and has built it from a marginal textile company into a gigantic conglomerate.
But instead of discussing how Buffett has come out swinging in favor of stock buybacks, the part of this year’s letter that’s gotten the most publicity, let’s have some fun with a few big numbers that are hiding in plain sight—and show how amazing Berkshire’s performance has been in the almost six decades that Buffett has run the show.
You can find those numbers on Page 2 of the report, just before Buffett’s nine-page trademarked—yes, trademarked—screed. (You can find the numbers I’m discussing, Buffett’s letter and the rest of the report here.)
The most interesting number, on the bottom line of Page 2, is 3,787,464%. That’s the gain in Berkshire’s stock price from the end of 1964 through the end of last year.
Now, let’s do some math.
At year-end 2022, Berkshire A stock—Berkshire’s only share class when Buffett took control of the company—sold for $468,711. Since Buffett is famous for never having split Berkshire’s stock, I was wondering how much a Berkshire share sold for at the end of 1964, where the “Berkshire’s Performance vs. the S&P 500" table that measures results from 1965 through 2022 begins.
The answer turns out to be 12 -3/8. How did I get that number?
In two steps. First, I divided the 3,787,464% gain by 100 and added back 1, for the original price. That means the year-end 2022 price was 37,875.64 times the year-end 1964 price. Using my handy dandy calculator, I then divided the year-end 2022 price of $468,711 by 37,875.64. And ended up with almost exactly $12.375. So 12-3/8 is our starting price.
It’s utterly astounding that a stock that was barely in two digits when Buffett took control is now priced in the mid six-digits. But that’s what the numbers are telling us.
(I emailed Berkshire’s chief financial officer Marc Hamburg, the contact listed in the news release accompanying the annual report, to see if my math was right. I didn’t hear back. But the numbers are the numbers.)
For reasons that aren’t clear, Berkshire paid a one-time, 10-cent cash dividend in 1967. I’m pretty sure that the dime, compounded over 55 years, isn’t included in Berkshire’s 7-digit percentage gain. I asked Hamburg about that, too, and didn’t hear back.
Now, let’s have some more fun with numbers by comparing the S&P 500 results with Berkshire’s results.
By Berkshire’s math, its stock gained 19.8% a year, compounded, from the start of 1965 through the end of 2022. That happens to be exactly twice the 9.9% (including reinvested dividends) that Berkshire says the S&P 500 gained.
However, when you look at the 58-year return, you see that Berkshire outperformed the S&P by more than 150 to one. You get that by dividing Berkshire’s 3,787,464% return by the S&P’s 24,708% return. Which shows that Berkshire’s return was a tad more than 153 times the S&P’s return.
How on earth can an annual return that’s only twice as big produce a return that’s 153 times as big? It’s the power of compounding over years and years. Double a return for 58 years, and that’s what you get.
One of the reasons Berkshire stock has done so well is that in 1996, Buffett issued a new class of stock, Berkshire B, which has attracted a ton of retail investors who would be priced out of A shares.
Berkshire’s B shares, which after a 2010 split are equivalent to 1/1500th of a share, now comprise almost 60% of the company’s stock.
That lets “Baby Berkshire” holders, including me, own a security that mirrors the results of Berkshire’s never-split, six-digit A shares. That way, we retail investors get the same return as Buffett even though we own a three-digit stock instead of having to hock ourselves to the eyeballs to buy A shares.
And that, my friends, is a classic example of fun with numbers.
Allan Sloan, who has written about business for more than 50 years, is a seven-time winner of the Gerald Loeb Award, business journalism’s highest honor. He’s won Loebs in four different categories over four different decades.
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