11 surprising things about Warren Buffett and Berkshire Hathaway | Smart Switch: Personal Finance

(Selena Marajin)

Many of us may think we know a lot about the super investor Warren Buffett, who has been at the helm of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) for more than 50 years. You may know a few things, like the fact that he’s a huge investor, a frugal guy, and someone who still lives in a relatively modest house he bought in the ’50s, but there are still likely to be a few details that will surprise you. Better yet, some things about Buffett can even help you get stronger financially.

Here’s a look at 11 surprising things about the guy and his company. See how many make you raise your eyebrows.

Image source: Getty Images.

1. It has a very good long-term performance record.

Most people just don’t know excuse me Amazing is Buffett’s track record. For more than 50 years, he has increased Berkshire Hathaway’s market value at an average annual rate of about 20%. Consider that the S&P 500 has only averaged about 10% over the same period, which is pretty good. Consider, too, that a 20% growth rate will turn a single $100 investment into about $900,000 over 50 years. We may not have 50 years of investing ahead of us, but the power of compounding can still effectively build our wealth.

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2. It started very, very early

If you’re in your 20s, 30s, or 40s and you’re thinking about being as successful as Buffett, you’re at a disadvantage, because he had a huge advantage over you. According to Roger Lowenstein, who wrote the fabulous biography Buffett: The Making of an American Capitalist — Buffett started making money selling gum to passers-by when he was just five years old. We, too, would do well not to put off saving and investing for our future, even if we are far from five years.

(It’s worth noting that Buffett’s wealth is all his own; it wasn’t based on any inheritance or gift from his parents.)

3. Your investment strategy has evolved

Buffett’s first mentor and a major influence on him was Benjamin Graham, author of the investment classics. The smart investor and Security analysis. Thanks in large part to Graham, Buffett started out as a strict value investor, meaning he only wanted to buy stocks for less than they were worth, often significantly less. He explained this old approach in his 1989 letter to shareholders:

If you buy a stock at a low enough price, there will usually be some hiccup in the fortunes of the business that will give you the opportunity to unload at a decent profit, although the long-term performance of the business may be dire. I call this the “cigarette butt” approach to investing. A cigarette butt found on the street that only has one puff in it may not offer much smoke, but the “bargain buy” will make that puff all the profit.

He went on to explain that he has learned, largely from his longtime investment partner and friend Charlie Munger, that a great enough business is often worth paying more for: “It’s much better to buy a wonderful company at a fair price than a fair company at a wonderful price.

4. He is good at throwing newspapers

It’s true that Buffett spends most of his time on non-strenuous activities like reading. But that doesn’t mean he can’t show off some skills from time to time. On the weekends of his annual stockholders’ meeting, he engaged in ping-pong battles, threw out the first pitch at baseball games and challenged the likes of Bill Gates to a newspaper tossing contest. He is good at launching newspapers because he delivered 600,000 of them in his youth, earning about $175 a month, a common salary for a full-time worker. (Buffett also plays the ukulele. See? Lots of skills.)

5. He was rejected by Harvard Business School

It may be hard to believe, but the young Buffett was turned down by the Harvard Business School when he applied. He has called it “the best thing that ever happened to me”: he ended up attending Columbia, where he was able to study with value investment experts Benjamin Graham and David Dodd.

6. His net worth exceeds the GDP of many countries

Buffett’s net worth was recently estimated at $118 billion by Forbes. To put that in perspective, it is worth more than the gross domestic product (GDP) of many, many countries, such as Morocco and Kuwait, according to World Bank data. His net worth is more than half the GDP of countries like Portugal and New Zealand.

7. Berkshire Hathaway is old

Berkshire Hathaway has clearly been around for a long time, as Buffett has owned it since 1965. But its roots go back much further: to Valley Falls Company, a textile company founded in 1839 in Cumberland, Rhode Island, long before the Civil War. War.

8. A Berkshire Hathaway class A share is expensive

The prevailing exchange rate for a single Berkshire Hathaway class A share often scares off investors. It recently traded at $489,802 per share. That’s right, you can buy a fancy home in many parts of the country, or a single Berkshire stock. Fear not, though, because there are now more affordable Class B shares available to everyone, recently trading at around $326.60 each.

9. Berkshire Hathaway owns many companies wholly

Over many decades, Buffett (and Munger) bought many companies and added them to Berkshire’s portfolio of wholly owned subsidiaries. These include Acme Brick, Benjamin Moore, Brooks, Business Wire, Clayton Homes, Duracell, Flight Safety, Forest River, Fruit of the Loom, GEICO, IMC International Metalworking Companies, International Dairy Queen, Johns Manville, Jordan’s Furniture, Justin Brands, Lubrizol , Marmon Holdings, McLane Company, Nebraska Furniture Mart, NetJets, Pampered Chef, See’s Candies and the entire BNSF Railroad.

10. Berkshire Hathaway owns a large chunk of major companies

Berkshire also has a large equity portfolio, through which it holds significant stakes in many companies. For example:

Company

Portion owned by Berkshire Hathaway

American Express

19.9%

moody’s

13.3%

Bank of America

12.8%

US Bank

9.7%

Coca Cola

9.2%

Apple

5.6%

Data source: BerkshireHathaway.comas of December 31, 2021. Chart by author.

11. Berkshire enjoys huge effective dividend yields

Something funny happens when you have stocks that pay dividends for many years: Those payments from companies tend to increase over time. A company’s dividend yield divides the current total annual dividend per share by the current stock price. But if you’re a dividend investor, it’s worth looking at the effective dividend yield, which divides the current total annual dividend by your cost basis in the stock, the price (split-adjusted) you paid for it.

So, imagine you buy Scruffy’s Chicken Shack (TICKER: BUKBUK) when it pays $1 per share and is trading at $25 per share. Divide $1 by $25 and you get 0.04, or 4%, a 4% dividend yield. But suppose 20 years later, you still own those shares, and the dividend is now $4 per share, and the stock is trading at $100 per share. Your dividend yield is still 4%, but your effective dividend yield is sixteen% — derived from dividing $4 by its purchase price of $25 per share.

It’s the same with Berkshire’s dividend-paying stock holdings. My colleague Sean Williams recently calculated that Berkshire enjoys a 20.3% effective return on its American Express stock, a 27.9% return on its Moody’s stock, and a whopping 54.2% return on its Coca-Cola stock. In other words, each year, Buffett gets back 54.2% of the purchase price of his Coca-Cola stock in dividends. The best thing about very effective dividend yields is that we can also have them if we buy and hold shares in wonderful and long-lasting businesses.

It’s unlikely we’ll ever be as good at investing as Warren Buffett, but that doesn’t mean we can’t learn from him and adopt some Buffett’s investment principles. We might even buy some Berkshire Hathaway stock so we can continue the ride.

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American Express is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. selena maranjian owns American Express, Apple and Berkshire Hathaway (B shares). The Motley Fool owns and recommends Apple, Berkshire Hathaway (B shares), and Moodys. The Motley Fool recommends the following options: Long January 2023 $200 Call on Berkshire Hathaway (B-stock), Long March 2023 $120 Call on Apple, Short January 2023 $200 Put on Berkshire Hathaway (B-stock), short January 2023 $265 Call on Berkshire Hathaway (B shares) and short $130 March 2023 calls on Apple. The Motley Fool has a disclosure policy.