by Today we are going to have fun with numbers. Specifically with some of the figures in Berkshire Hathaway’s new annual report to shareholders.
As usual, the report has received a ton of media attention because it contains a long, discursive annual letter from legendary investor Warren Buffett, who took control of Berkshire (BRK-A) (BRK-B) in 1965 and has built it from a marginal textile company into a giant conglomerate.
But instead of debating how Buffett has come out swinging in favor of stock buybacks, the most publicized part of this year’s letter, let’s have some fun with a few big numbers hiding in plain sight—and show how amazing Berkshire’s performance has been in the nearly six decades Buffett has run the show.
You can find those numbers on page 2 of the report, right before Buffett’s nine-page trademarked—yes, trademarked—scream. (You can find the numbers I discuss, Buffett’s letter, and the rest of the report here.)
The most interesting number, on the bottom line on page 2, is 3,787,464%. That is the gain in Berkshire’s share price from the end of 1964 to the end of last year.
Let’s do some math.
At the end of 2022, Berkshire A shares — Berkshire’s only share class when Buffett took control of the company — were selling for $468,711. Since Buffett is known to have never split Berkshire’s stock, I was wondering how much a Berkshire stock was selling for at the end of 1964, where the “Berkshire’s performance vs. S&P 500” table measuring performance from 1965 to 2022 begins.
The answer turns out to be 12 -3/8. How did I get that number?
In two steps. First, I divided the gain of 3,787,464% by 100 and put back 1, for the original price. That means the price at the end of 2022 was 37,875.64 times the price at the end of 1964. Using my handy dandy calculator, I then divided the price at the end of 2022 of $468,711 by 37,875.64. And ended up with almost exactly $12,375. So 12-3/8 is our starting price.
It’s absolutely astonishing that a stock that was barely in the double digits when Buffett took control is now priced in the mid-six figures. But that’s what the numbers tell us.
(I emailed Berkshire CFO Marc Hamburg, the contact listed in the news release accompanying the annual report, to see if my math was correct. I didn’t hear back. But the numbers are the numbers.)
For reasons that are not clear, Berkshire paid a one-time dividend of 10 cents in cash in 1967. I’m pretty sure that penny, compounded over 55 years, is not included in Berkshire’s 7-figure percentage gain. I asked Hamburg about that too, and didn’t hear back.
Let’s have a little more fun with numbers by comparing the S&500 results to Berkshire’s results.
By Berkshire’s calculation, the stock gained 19.8% a year, compounded, from the start of 1965 to the end of 2022. That happens to be exactly double the 9.9% (including reinvested dividends) that Berkshire says the S&P 500 earned.
But when you look at the 58-year return, you see that Berkshire outperformed the S&P by more than 150 to one. You get that by dividing Berkshire’s 3,787,464% return by the S&P’s 24,708% return. Which shows that Berkshire’s return was slightly more than 153 times the S&P’s return.
How in the world can an annual return that is only twice as large produce a return that is 153 times as large? That is the power of compounding over years and years. Double returns for 58 years and that’s what you get.
One of the reasons Berkshire stock has done so well is that in 1996 Buffett issued a new share class, Berkshire B, which has attracted a ton of retail investors who would be priced out of A shares.
Berkshire’s B shares, which after a split in 2010 correspond to 1/1500th of a share, now make up almost 60% of the company’s shares.
It allows “Baby Berkshire” holders, including me, to own a security that mirrors the performance of Berkshire’s never-divided, six-figure A shares. That way, we retail investors get the same returns as Buffett, even though we own a triple-digit stock instead of having to jump in the eyeballs to buy A shares.
And that, my friends, is a classic example of fun with numbers.
Allan Sloan, who has written about business for more than 50 years, is a seven-time winner of the Gerald Loeb Award, business journalism’s highest honor. He has won Loebs in four different categories over four different decades.
