Berkshire Hathaway Inc.’s annual shareholders’ meeting attracts as many attendees as a Justin Bieber concert. For weeks after Warren Buffett hosts his annual shareholder jamboree at Nebraska in May each year, the financial press can talk of little else. Even the cynical investing community goes into fan-boy mode when it comes to Mr. Buffett, hanging on to his every word as a piece of timeless wisdom.
But why does Warren Buffett command such adulation? What makes him an investment icon? Here are four pieces of statistics that explain Buffett-mania.
Investor billionaire
Can financial investors ever hope to become as wealthy as entrepreneurs who found businesses? Mr. Buffett is proof that they can.
According to Forbes’ World Billionaires listing, Warren Buffett is the world’s second-richest individual with $75.6 billion in net worth in 2017. He was next only to Bill Gates with $86 billion.
He is also the only investor to figure in the list of the world’s top 10 billionaires, the nine others being owners of thriving businesses.
Mr. Buffett’s wealth is almost wholly attributable to the market value of his equity shares in Berkshire Hathaway Inc.
They have simply galloped from the time he first snapped them up. From $19 at which Mr. Buffett acquired each Berkshire Hathaway share in 1964, the original (Class A) share has seen its price soar to $245,240 by May 2017. The stock boasts of the highest traded price in the U.S. market.
For early investors in Berkshire Hathaway, this appreciation has meant untold riches. Every $1,000 invested in Mr. Buffett’s company in 1964 is today worth $13 million. Forget the sixties, even shareholders who bought the stock in the early nineties have seen their investment multiply 37 times.
The stock price performance of Berkshire Hathaway Inc. over six decades owes a lot to Mr. Buffett’s investment acumen.
Starting out as a textile business, Berkshire Hathaway today is a sprawling agglomeration of companies engaged in diverse businesses ranging from insurance and railroads, to ketchup and soft drinks.
Giant scale
Most of the stock price appreciation managed by Berkshire can be traced to the stupendous scaling up of the company’s operations. In 1965, the maiden year under Mr. Buffett’s stewardship, Berkshire reported net profits of $2.2 million on sales of $49 million mainly from a tottering textile business. Assets on its balance sheet amounted to $28 million.
By 2016, Berkshire Hathaway Inc. ranked among the top global corporations, with net profits of $24 billion on a revenue base of $223 billion. The assets on its balance sheet were $620 billion. Profits have expanded 12,000 times and assets 22,000 times, over a 50-year time span.
Mr. Buffett likes to attribute much of this growth to the animal spirits unleashed by America’s free-market economy over the last five decades. But Mr. Buffett and his managers also deserve credit for cherry-picking a portfolio of businesses that have enthusiastically participated in this growth.
Berkshire’s balance sheet has been built up brick-by-brick through acquisitions. Today, it has subsidiaries engaged in insurance, railroads, power, gas pipelines, industrial products, financial services, consumer brands and even aviation services. This is apart from its much-discussed portfolio of listed stocks — Kraft Heinz, Coca Cola, IBM, American Express, Phillips, Apple Inc. and many more.
Market clout
With $100 billion of ‘float’ money (premium income) from its insurance business and healthy cash flows from other ventures, Berkshire is sitting on one of the largest corporate stock-piles of cash in the world. In its latest shareholders meeting, it admitted to holding over $96 billion.
That kind of firepower gives Mr. Buffett enormous market clout, both in snapping up good businesses from owners and in calling the shots on the firms that it already owns.
In its website, Berkshire Hathaway makes an open invitation to business owners looking to sell stake, asking them to make a pitch if they can meet its stringent criteria.
The amount of money that Mr. Buffett can afford to sink into each stock market bet also gives him big influence over marquee listed firms. As of end-2016, Berkshire owned 19.2% of equity in Kraft Heinz, 17.8% in Wells Fargo, 11.2% in Coca Cola, 9.1% in IBM and 7.6% in American Express.
With these stakes, it’s easy to understand why Mr. Buffett’s pronouncements on stocks literally move the market. Recently, news that Mr. Buffett had sold a third of his holdings caused the IBM stock to tank 3.8% in a day. The busloads of investors who mimic Mr. Buffett’s every investment move also add to the clout.
Beating the market
Unlike in India, money managers in the U.S. count themselves lucky if they manage to keep pace with the S&P 500 index. A majority of well-paid fund managers fail to beat it.
But Berkshire has managed this task quite comfortably.
Between 1965 and 2016, while the S&P 500 earned an annual return of 9.7%, the Berkshire stock delivered 20.8%. This is despite spells of under-performance in years such as 2011 and 2015. And, for those who think stock markets don’t capture the true value of a business, Berkshire’s book value (assets on the books after netting out dues), has grown at 19 % too from the mid-sixties.
So, it is quite clear, really, why Mr. Buffett has this global fan following. He’s a living lesson on the wealth creation potential of equities.
