What Has Warren Buffett Accomplished for Berkshire Share Owners Since 1965?
As we approach the 50th anniversary of Warren Buffett’s taking control of Berkshire Hathaway on May 10, 1965 it is timely to look at what he has done for Berkshire’s share owners (so
far).
The book value per share at the beginning of the fiscal year in which Buffett took control was $19.46. This was at the beginning of October 1964. As of the end of Q2 2014 the book value per share had increased to $142,483 (Calculated as $234,005 million equity divided by 1.642335 million class-A equivalent shares).
That’s an increase in book value per share of 732,084%. This is a staggering and almost unfathomable increase. It’s almost three quarters of a million percent. On an annual compounded basis it’s 19.6% per year compounded for 50 years (49.75 years, to be precise).
When it comes to the increase in the share price, the increase is even larger. The trading price of the shares in early May 1965 just before Buffett took control was about $18. Today those very same shares trade for $208,133 per share. That is an increase of 1,156,194%, or 1.16 million percent! It’s an increase of 11,562 fold! On a compounded annual basis that’s an increase of an average of 20.8% per year for 49.5 years.
Every $1000 invested in Berkshire as of May 1965 is now worth $11.6 million. Every $1.00 worth of Berkshire shares from 1965 is now worth $11,562. Many investors are ecstatic when they achieve a 10 fold increase, a 10 bagger. Here we have an 11,562 bagger, and counting!
By any standard, Warren Buffett has accomplished truly unmatched and extraordinary results for Berkshire share owners.
At the beginning of that fiscal year that Buffett took control of Berkshire it had 1,137,776 shares outstanding and the book value was $22.139 million. Today, 50 years later the total share count has increased to 1,642,335 shares (with the class B shares counted on a basis equivalent to the original shares now called class A). So the share count has increased by 44%.
The shares that existed in 1965 had 100% ownership of a declining textile business with a book value of $22.139 million. Today, those same shares (and they almost all still exist since relatively few shares were ever bought back by the company) represent 69% ownership of a world-class business that has a book value of $234,005 million. For the 69% that is $162,114 million. A gain of 732,255%. The same 732,084% increase in book value per share mentioned above, with the very small difference being attributable to rounding. The business, which these shares
represent 69% ownership of, now includes a huge rail road, a huge utility operation, a huge insurance operation, dozens of smaller business and a huge stock portfolio. This business was ranked number four on the latest Fortune 500 list and Forbes ranked it the number five largest business in the world. And about 69% of the ownership is represented by growth of the original $22.2 million equity capital that Buffett started with.
It seems safe to say that no other business in the world with at least $10 million in equity in 1965 has grown its equity per share at a faster rate.
One of the reasons for the unimaginable growth that has been achieved is that Berkshire has paid no dividends since Buffett acquired it. Well, ironically enough, with the exception of one thin dime paid out in 1967. With the exception of that dime, when the share count was about 1,017,547 amounting to a total dividend paid out of $101,755, every dollar of earnings has been retained
and reinvested for growth. Those cumulative retained earnings now amount to $154,848 million.
Warren Buffett has basically accomplished the seemingly impossible and the unfathomable for his shareholders over these last 50 years. The accomplishment of growth per share in the range of one million percent is almost beyond comprehension.
END
Shawn Allen, CFA, CMA. MBA, P.Eng.
Dated September 28, 2014 (50.0 years from the time that Buffett tracks his performance from the beginning of the fiscal year in which he took over the company)