11 Surprising Things About Warren Buffett and Berkshire Hathaway
- Some of Buffetts investments pay him 20% or 50% per year!
- 1. He has a really good long-term performance record
- 2. He started really, really early
- 3. His investing strategy has evolved
- 4. He's good at tossing newspapers
- 5. He was rejected by Harvard Business School
- 6. His net worth tops many countries' GDPs
- 7. Berkshire Hathaway is old
- 8. A share of Berkshire Hathaway Class A stock is pricey
- 9. Berkshire Hathaway owns many companies in their entirety
- 10. Berkshire Hathaway owns big chunks of major companies
- 11. Berkshire enjoys some huge effective dividend yields
Some of Buffetts investments pay him 20% or 50% per year!
Many of us may think we know a lot about super investor Warren Buffett, who has been at the helm of Berkshire Hathaway (BRK.A -0.96%) (BRK.B -0.98%) for more than 50 years. You may know some things, such as the fact that he's a great investor, a frugal guy, and someone who still lives in a relatively modest house he bought in the '50s -- but there are likely still some details that will surprise you. Better still, some things about Buffett can even help you get financially stronger.
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. He has a really good long-term performance record
Most folks don't know just how amazing Buffett's track record is. Over 50-plus years, he has increased the market value of Berkshire Hathaway by an average annual rate of about 20%. Consider that the S&P 500 has averaged only around 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 build our wealth effectively.
2. He started really, really early
If you're in your 20s or 30s or 40s and are thinking of becoming as successful as Buffett, you're at a disadvantage -- because he had a big head start over you. According to Roger Lowenstein -- who wrote the terrific biography Buffett: The Making of an American Capitalist -- Buffett began making money selling gum to passers-by when he was only five years old. We, too, would do well not to put off saving and investing for our futures, even if we're far from five years old.
(It's worth noting that Buffett's wealth is all his own, he didn't build on any inheritance or gift from his parents.)
3. His investing strategy has evolved
Buffett's first mentor and a huge influence on him was Benjamin Graham, author of the investing classics The Intelligent Investor and Security Analysis. Thanks in large part to Graham, Buffett started out as a strict value investor, meaning that 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 sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long- term performance of the business may be terrible. I call this the 'cigar butt' approach to investing. A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the 'bargain purchase' will make that puff all profit.
He then went on to explain that he has learned, in large part from his longtime investing partner and friend Charlie Munger, that it's often worth paying more for a sufficiently terrific business: 'It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.'
4. He's good at tossing newspapers
It's true that Buffett spends most of his time in non-strenuous activities such as reading. But that doesn't mean he can't show off some skills now and then. At his annual shareholder meeting weekends, he has engaged in ping pong battles, thrown out the first ball at baseball games, and has challenged the likes of Bill Gates to a newspaper-tossing contest. He's good at newspaper tossing because he delivered 600,000 of them in his youth, earning around $175 per month -- a not-uncommon wage for a full-time working man. (Buffett also plays the ukulele. See? Many skills.)
5. He was rejected by Harvard Business School
It may be hard to believe, but Harvard Business School rejected young Buffett when he applied to it. He has called that 'the best thing that ever happened to me' -- he ended up attending Columbia, where he got to study with value investing experts Benjamin Graham and David Dodd.
6. His net worth tops many countries' GDPs
Buffett's net worth was recently estimated at $118 billion by Forbes. To put that into perspective, he's 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 a long time, as Buffett has owned it since 1965. But its roots go far back beyond that -- to the Valley Falls Company, a textile business founded in 1839 in Cumberland, Rhode Island, well before the Civil War.
8. A share of Berkshire Hathaway Class A stock is pricey
The going rate for a single share of Berkshire Hathaway's Class A stock often startles investors. It recently traded at $489,802 per share. That's right -- you might buy a fancy house in many parts of the country -- or a single share of Berkshire stock. Fear not, though, because there are now more affordable Class B shares available to everyone, recently trading for around $326.60 apiece.
9. Berkshire Hathaway owns many companies in their entirety
Over many decades, Buffett (and Munger) has bought many businesses, adding 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 big chunks of major companies
Berkshire also has a hefty stock portfolio, through which it owns major stakes in many companies. For example:
Portion Owned by Berkshire Hathaway
Bank of America
Data source: BerkshireHathaway.com, as of Dec. 31, 2021. Chart by author.
11. Berkshire enjoys some huge effective dividend yields
A funny thing happens when you own dividend-paying stocks for many years: Those payouts from the companies tend to be increased over time. A company's dividend yield divides the current annual total 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 annual total dividend by your cost basis in the shares -- the (split-adjusted) price you paid for them.
So, imagine you buy into Scruffy's Chicken Shack (TICKER: BUKBUK) when it's paying out $1 per share and trading at $25 per share. Divide $1 by $25 and you'll get 0.04, or 4% -- a 4% dividend yield. But let's say that 20 years later, you're still holding those shares, and the dividend is now $4 per share, and the stock is trading at $100 per share. Its dividend yield is still 4% -- but your effective dividend yield is 16% -- derived by dividing $4 by your 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 is enjoying a 20.3% effective yield for its American Express shares, a 27.9% yield on its Moody's shares, and a whopping 54.2% yield on its Coca-Cola shares. In other words, every year, Buffett gets back 54.2% of his purchase price for his Coca-Cola stock in dividends. The great thing about fat effective dividend yields is that we can have them, too, if we buy and hold stock in wonderful, lasting businesses.
It's unlikely that 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 investing principles. We might even buy some shares of Berkshire Hathaway so that we can go along for the ride.