Berkshire Hathaway: The Stock That Costs $512,991 and the Brilliant Minds Behind It

Berkshire Hathaway Inc. Class A shares, the priciest stock in global markets today, is trading at $512,991. The stock has gained 113.27% in the last 24 months.

Berkshire Hathaway has averaged an annual growth in book value of 19.0% to its shareholders since 1965 (compared to 9.7% from the S&P 500 with dividends included for the same period).

What's more intriguing is the size of capital with which Chairman and CEO Buffett made this feat possible. For perspective, most technical analysis strategies fail when carried out with the size of capital that Buffett handles.

When Warren Buffett initially bought the shares of Berkshire Hathaway, he bought them at $7 each. The stock hasn't had a single stock split since and investor fortune seems to just keep growing.

In fact, because of the high price, the market demanded a lower-priced, more common-stock stake in Berkshire. So in 1996, Warren Buffett and the board issued 517,500 shares of Class B shares, offering the ability to invest in the company for, initially, 1/30th the price (and equity) of a Class A share of stock. As of writing, the class B shares have a price of $343.40.

According to Investopedia, the main reason for the introduction of Class B shares was to allow investors to be able to purchase the stock directly instead of buying a sliver of a share through unit trusts or mutual funds that mirror Berkshire Hathaway's holdings.

Rise of Berkshire Hathaway

Today, Berkshire Hathaway is an American conglomerate company. The company wholly owns GEICO, Duracell, Dairy Queen, BNSF, Lubrizol, Fruit of the Loom, Helzberg Diamonds, Long & Foster, FlightSafety International, Shaw Industries, Pampered Chef, Forest River, and NetJets, and also owns 38.6% of Pilot Flying J, and significant minority holdings in public companies Kraft Heinz Company (26.7%), American Express (18.8%), The Coca-Cola Company (9.32%), Bank of America (11.9%), and Apple (6.3%), although real-time data may have changed.

But when Warren Buffett discovered Berkshire Hathaway in the year 1962, the same year Buffett had become a millionaire, Berkshire Hathaway was a struggling textile company. Buffett was left owning a declining company which he had no way to get out of.

This was when he learned that instead of buying poor companies at low prices, it is wise to buy good companies at fair prices. Nonetheless, Buffett decided to invest through the company, and he eventually made a big slash by deciding to invest in insurance companies.

Like banks collect deposits, insurance companies collect insurance premiums, but unlike banks, depositors do not withdraw (claim) the deposited sum until the insured risk materializes or the premium matures. This gives an insurance company immense capital to invest, which is beneficial in the hands of a skilled investment expert like Buffett.

By 1983, Berkshire Hathaway's portfolio was over a billion dollars, and 3 years later, Buffett himself became a billionaire.

More Into Warren Buffett

Warren Buffett is revered by many because he did something truly exceptional: he became one of the richest men alive, not by innovative technology or inheriting billions, but by winning on the stock market consistently for over half a century.

Warren Buffett wanted to be rich from the very beginning. Buffett's father moved the family to Washington DC from Warren's hometown Omaha, and it was only natural that Warren felt lonely.

Thus, Buffett did maths in school, at home, and developed a love for numbers. He read investment books in his father's study. Warren Buffett would tell his friends in school that if he didn't become a millionaire by the age of 30, he would jump off the tallest building he could find.

Warren Buffett delivered newspapers, sold candies and cola, operated a pinball machine for a profit, and dabbled into the stock market from a very young age. Buffett paid for college from the farm that he bought and rented out.

Buffett joined Columbia University because he was rejected from Harvard and also because his idol Benjamin Graham taught at Columbia. Graham's book The Intelligent Investor still remains the most impactful book for Buffett.

Buffett worked for Graham for a short period after college and decided to start his own partnership investment firm with $175,000. His cigarette-butt style of investing: buying beaten-down companies trading below a conservative assessment of their liquidation values, indeed made him a millionaire by 32.

Partnership With Charlie Munger

Perhaps the most influential human Buffett met other than himself is Charlie Munger. Buffett, who used to be the center of attraction and "that guy" in a social setting was cast in a shadow by Charlie Munger when they first met. However, instead of being jealous about it, Buffett took a liking to Munger.

“I just knew instantly Charlie was the kind of guy that I was going to like, and I was going to learn from,” Buffett said in an interview. “About five minutes into it, Charlie was sort of rolling on the floor laughing at his own jokes, which is exactly the same thing I did,” Buffett, 90, said. “I thought, ‘I’m not going to find another guy like this.’ And we just hit it off.”

Charlie is most influential for changing Buffett's devotion to Benjamin Graham's investing approach of finding "cigar-butts" companies at a bargain to a modified, contemporary investing approach of looking for great companies at a good price.

In 1978, Munger became vice chairman of Berkshire Hathaway, a position he still holds. Charlie is known as a “sidekick” in Buffett's story only to people who don't know him very well. To those who do know him, Charlie is a fiercely independent intellectual who, in the words of his partner Buffett, “Marches to the beat of his own music, and it's music like virtually no one else is listening to.”

Popular Warren Buffett and Charlie Munger Quotes

"Price is what you pay. Value is what you get."
Warren Buffett

"Be fearful when others are greedy. Be greedy when others are fearful."
Warren Buffett

"I made my first investment at age eleven. I was wasting my life until then."
Warren Buffett

"Only when the tide goes out do you discover who's been swimming naked."
Warren Buffett

"Our favorite holding period is forever. We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint."
Warren Buffett

"When any guy offers you a chance to earn lots of money without risk, don't listen to the rest of his sentence. Follow this, and you'll save yourself a lot of misery."
Charlie Munger

“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
Charlie Munger

"The big money is not in the buying or the selling but in the waiting. It takes the character to sit with all that cash and to do nothing. I didn’t get to where I am by going after mediocre opportunities."
Charlie Munger