It was Valentine’s day yesterday, but if you’re a Berkshire Hathaway Inc (NYSE:BRK.A) shareholder, you won’t be remembering it for the over-priced dinner at the local steakhouse.
Instead, 14 February 2017 will be remembered as the day that the Berkshire share price edged over US$250,000 to reach its all-time highest close.
No, you haven’t read that wrong nor is it a typo. A quarter of a million dollars is now the going rate for one Berkshire Hathaway Class A share.
At the head of this ultra-exclusive club is Warren Buffett, the renowned investor and (depending on your source of information) the second richest person in the world worth a cool US$75bn or so.
His company has surged more than 12% in the months following the US election, which ironically he reportedly had hoped would be won by Hillary Clinton.
It might not stop there either. Analysts reckon insurance firm Geico – taken over by Berkshire in 1996 – is likely to post improved results at its next quarterly earnings report.
Wall Street reckons the cash pouring in from the likes of Geico and other wholly-owned subsidiaries such as NetJets and Fruit of the Loom could see the Berkshire cash pile hit US$100bn later this year.
The astonishing price tag on the company's shares can almost be justified by Berkshire's returns over the past 50 years or so since Buffett took the reins.
The per-share book value of the company rose by more than 1,800,000% between 1964 and 2015.
Upsetting the Apple-cart
At the ripe old age of 86, if Buffett can still cartwheel there’s a good chance he’s done one or two over the past couple of weeks.
The billionaire has tended to avoid tech stocks in his time at the helm of Berkshire Hathaway, following the principle of "invest in what you know", but the company began to pile into Apple this time last year.
By September, Berkshire had 15.23mln shares in the California-based group.
The share price then began to fall away towards the end of the year but rather than follow the likes of George Soros and pull out from Apple altogether, Buffett went the other way and loaded up even more.
By the end of the year, Berkshire owned a little over 57mln shares in the tech giant. Assuming its stake has remained the same during the first six weeks of the year, that stake is now worth in the region of US$7.75bn; or around US$1.1bn more than it was at the end of 2016.
Airliners get the backing of Buffett
Berkshire more than doubled its stake in American Airlines Group Inc (NASDAQ:AAL) to 45.5mln shares as of 31 December, while its investment in Delta Air Lines Inc (NYSE:DAL) increased almost tenfold to 60mln shares.
Monsanto Company (NYSE:MON) and Sirius XM Holdings Inc (NASDAQ:SIRI) were also on the list of Berkshire investments at the end of 2016. All of these companies, without exception, gained in pre-market trading on Wednesday.
Warren Buffett: A brief history
The son of Congressman Howard Buffett, the future billionaire was born in 1930 in Omaha, Nebraska (hence the nickname).
He had a penchant for making money from a young age, with various stories of him selling chewing gum, delivering papers and working in his grandfather’s grocery shop.
When he was still only 15, Buffett and a friend put a games machine in a barber shop. Within months the pair had installed a few more machines in other shops and sold the business shortly after for US$1,200.
After being rejected for Harvard, the 19-year-old Buffett enrolled at the Columbia Business School of Columbia University, earning a master’s degree in economics.
Following a few successful partnerships and fairly well-paid jobs as a broker and salesman, by 1962 Buffett was a millionaire.
He started buying shares in a relatively unknown textiles firm, Berkshire Hathaway, in the same year, before completing the takeover of the group in 1965.
Berkshire eventually moved away from its textiles roots, with Buffett instead choosing to use it as a holding company for other investments.
The company has gone on to make numerous investments in the likes of Coca Cola (NYSE:KO) and American Express (NYSE:AXP), while it has also bought outright several businesses including Geico and Fruit of the Loom.
The millionaire became a billionaire in May 1990 when Berkshire Hathaway began selling Class A shares, with the market closing at US$7,175 a share on the first day of trading.
Savvy investments have been key to Buffett’s success, and if you were to ask Buffett where he learned most of his tricks he’d likely point to his old Columbia Business School professor Benjamin Graham.
Graham first came up with what is now called ‘value investing’ back in the ‘30s, a theory which he then passed on to many students, including the young Buffett.
The professor, and now his ex-student, has argued that the essence of value investing is buying stocks at less than their intrinsic value.
For example, a stock that trades at a discount to its book value, or has low price-to-earning multiples might be considered to be a value investment.
Value investing doesn’t mean buying cheap stocks though. As Buffett has explained on several occasions: “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”
Buffett's investing methods have paid off handsomely on numerous occasions, and the world famous drinks brand that is Coca Cola is up there with one of his greatest ever buys.
He purchased a 7% stake in the firm for US$1bn back in 1988, which Berkshire still holds to this day. That same stake is now worth upwards of US$12bn.
One of his early deals, way back in 1964, was to buy shares in American Express after the bank’s share price collapsed to US$35 following a fraud scandal.
While Wall Street moved its money out of the company, in came the Oracle who snapped up a 5% stake for US$13mln. Only a few years later and the share price was back up to US$180, netting him a tidy US$20mln profit.
Another smash hit for the world’s second richest man also came in his earlier days. In 1976 when insurance firm Geico was facing bankruptcy, Buffett started buying stock at US$2 a share before completing the takeover almost two decades later in 1996.
Under Berkshire’s leadership, Geico has become the second largest private vehicle insurer in the US.
A couple of misses, too
It hasn’t all been plain sailing though.
Buffett admitted a couple of years ago that “thumb sucking” with regards to selling its stake in UK supermarket Tesco PLC (LON:TSCO) cost Berkshire US$444mln; one of the biggest losses in its history.
Buffett refused to pull the plug on his investment despite the grocer issuing four profit warnings and becoming embroiled in an accounting scandal back in 2014.
Another error of judgement came in 2007 when Buffett, without consulting his right hand man Charlie Munger, bought US$2bn of bonds in the utilities firm Energy Future Holdings.
Buffett had expected gas prices to rise but they took a dive instead. Buffett threw in the towel in 2013 and sold the bonds for just US$259mln for a total loss of almost US$900mln.