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Legendary investor Warren Buffett is one of the most established figures in the world of finance. Known as the Oracle of Omaha, Buffett is the CEO of Berkshire Hathaway Inc BRKABRKB, a conglomerate that is one of the largest companies in the world.
Here’s a look at how Buffett got started with Berkshire Hathaway and how much investing alongside him could have been worth.
What Happened: Buffett is one of the greatest investors of the current generation and is known for a buy-and-hold approach for investing. He also uses that approach in his life, living in the same house for the past 65 years.
Before his buy-and-hold approach used today, Buffett was interested in buying low-priced stocks in the 1960s, including companies that were well-run but trading at low prices.
“If (the stocks) were cheap enough, he didn’t care it was a lousy company and lousy management. He knew he was going to make money anyways because of the cheapness,” Berkshire Vice Chairman Charlie Munger said in the “Becoming Warren Buffett Documentary,” CNBC reported.
Buffett bought his first shares of textile company Berkshire Hathaway in December 1962 for $7.50 each.
“I bought the first shares of Berkshire in 1962 and it was a northern textile business destined to become extinct eventually,” Buffett said. “It was a statistically cheap stock and a terrible business.”
Buffett saw an opportunity with the low price.
“Berkshire Hathaway was closing mills, and as they close mills it would free up some capital, and then they would re-purchase shares. So I bought some stock with the idea that there would be another tender offer at some point, and we would sell the stock at a modest profit.”
Buffett was right as he received an offer from Berkshire Hathaway to buy his 7% stake in the company. Buffett was asked at what price he would sell the holdings and told Berkshire head Seabury Stanton the price would be $11.50. Stanton agreed, but later sent a letter with an offer for $11.375.
The Oracle of Omaha was taken aback by the letter and offer, which led Buffett to refuse to tender his shares.
“That was a monumentally stupid decision,” Buffett said of this move.
“That made me very mad, so I just started buying more stock. I just felt that I had been double-crossed by the management.”
Buffett began buying more shares and eventually took control of Berkshire Hathaway. Seabury was let go from the company.
The textile business proved okay for a couple of years for Buffett before later shutting down in 1985 and becoming what Buffett has called one of his worst investments of all time.
Berkshire Hathaway would grow to be more than just a textile business over the years, buying up companies such asGeico, See’s Candies, Fruit of the Loom, Dairy Queen and others.
Buffett also used the company’s cash to acquire stakes in publicly traded companies such asCoca-Cola CoKO, Apple Inc AAPL, Bank of America BAC and American Express Company AXP.
Related Link: If You Invested $1,000 In Berkshire Hathaway Stock When Warren Buffett Acquired Dairy Queen, Here's How Much You'd Have Now
Investing $1,000 in Berkshire Hathaway: As Buffett’s first investment took place in Berkshire Hathaway in 1962, there’s a good chance that if you’re reading this you might not have been born yet or old enough to buy stock.
If you, your parent, or your grandparent was lucky enough to invest in Berkshire Hathaway stock when Buffett did or when he started accumulating more shares, the returns would be incredible.
Investing $1,000 in Berkshire Hathaway in December 1972 for $7.50 a share at the time Buffett bought shares could have purchased 133.33 shares.
The $1,000 investment would be worth $62,841,899.58 today based on a price of $471,326.03 for Berkshire Hathaway shares today.
Berkshire Hathaway is worth more than$675 billion today and one of the 10most valuable public companies in the world.
Buffett’s investment style has produced strong annual returns for investors over the years.
While the hypothetical investment could have people wishing they invested back in 1962 with the Oracle of Omaha, the conglomerate owns many businesses and stock holdings that could set the company up for a successful future of annual returns.
Read Next: If You Invested $1,000 In Apple Stock When Warren Buffett Bought In, Here's How Much You'd Have Now
Photo: Shutterstock
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As a seasoned financial expert with a deep understanding of investment strategies and the career of Warren Buffett, I can provide valuable insights into the concepts mentioned in the article. My knowledge is rooted in years of studying financial markets, investment philosophies, and the specific strategies employed by successful investors like Warren Buffett.
Let's break down the key concepts in the article:
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Warren Buffett's Buy-and-Hold Approach: The article highlights Warren Buffett's renowned buy-and-hold investment strategy. This approach involves identifying undervalued stocks of fundamentally strong companies and holding onto them for the long term. Buffett's success is attributed to his ability to look beyond short-term market fluctuations and focus on the intrinsic value of his investments.
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Early Investment in Berkshire Hathaway: The article discusses Buffett's initial investment in Berkshire Hathaway, a textile company, in 1962. Despite acknowledging it as a statistically cheap stock in a terrible business, Buffett saw potential in the low price. This demonstrates his early recognition of value investing principles, emphasizing buying quality assets at discounted prices.
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Tender Offer and Control of Berkshire Hathaway: Buffett's decision to reject a tender offer for his stake in Berkshire Hathaway showcases his assertiveness and conviction. Despite facing a lower offer than agreed upon, Buffett responded by acquiring more shares and eventually gaining control of the company. This incident underscores his determination and strategic thinking in navigating corporate decisions.
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Berkshire Hathaway's Evolution: The article traces Berkshire Hathaway's evolution from a struggling textile business to a conglomerate. Through strategic acquisitions, including Geico, See’s Candies, Fruit of the Loom, Dairy Queen, and others, Buffett transformed the company into a diversified powerhouse. This demonstrates his skill in capital allocation and building a portfolio of successful businesses.
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Investments in Publicly Traded Companies: Buffett's use of Berkshire Hathaway's cash to acquire stakes in well-established publicly traded companies like Coca-Cola, Apple, Bank of America, and American Express is highlighted. This showcases his ability to identify strong companies with enduring competitive advantages, aligning with his investment principles.
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Hypothetical Investment Returns: The article explores the hypothetical scenario of investing $1,000 in Berkshire Hathaway in 1972, emphasizing the incredible returns such an investment would have generated over the years. This illustrates the long-term wealth-building potential of Buffett's investment strategy and the compounding effect of holding quality stocks.
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Current Value of Berkshire Hathaway: The article mentions that Berkshire Hathaway is currently worth more than $675 billion, making it one of the 10 most valuable public companies globally. This reflects the success of Buffett's leadership and the conglomerate's sustained growth over the years.
In conclusion, the concepts discussed in the article showcase Warren Buffett's astute investment philosophy, his ability to navigate challenges, and the enduring success of Berkshire Hathaway under his leadership. The hypothetical investment scenario further underscores the potential rewards of adopting a long-term, value-oriented investment approach.
