Warren Buffett’s annual letter to Berkshire Hathaway’s shareholders arrived over the weekend, and it bears testimony to the fact that Buffett and his long-time business partner Charlie Munger have got it — the Midas touch.
Buffett and Munger's value hunt spanning more than half a century also testifies that equities work better and earn best when one stays invested over a long period.
Buffett and Munger have managed to deliver 20.9% compounded annual growth rate in the market value of Berkshire Hathaway over 53 years, from 1965 to 2017. The book value per share has risen at 19.1% CAGR, from $19 to $211,750, in these 53 years. While S&P 500 delivered just 9.9% CAGR, where dividends over the year are also included.
For those thinking that a tad over 20% growth is not extraordinary, here’s a better measure. S&P 500, including dividends grew by 15,508% in absolute terms, between 1964 and 2017. While Berkshire Hathaway’s market value grew by 2,404,748%, while book value grew 1,088,029% over the same period. That’s a lot of growth over a long time - more than half a century.
Interestingly, S&P 500 has outperformed Berkshire Hathaway in just 17 out of the 53 years, which included two years (1974 and 1990) where both delivered negative returns, but S&P 500 delivered lower negative returns compared to Berkshire Hathaway.
In the remaining 36 years, Berkshire Hathaway has delivered an average 27.7% higher return relative to S&P 500. The best three years for Berkshire Hathaway were 1976, 1979 and 1968, when it delivered annual growth of 129.3% (S&P500: +23.6%), 102.% (S&P 500: +18.2%), and 77.8% (S&P 500: +11.0%) each.
Relative to S&P 500's 15 annual instances of outperforming Berkshire Hathaway, the latter noted 50%-plus annual growth in its market value for 10 different years out of 53. The magic touch of Buffett and Munger can also be seen in the current equity portfolio of Berkshire Hathaway.
While the larger portfolio has grown close to 2.3 times, three of Berkshire Hathaway’s investments have grown over 10 times in relation to cost. Moody’s Corporation, The Coca-Cola Company, and American Express have each seen 14.7, 14.1, and 11.7 times growth in terms of market value on Dec. 31, 2017 versus the respective costs. While, Apple Inc, has the highest of the big 15s investments at $20.96 billion, which is valued 1.3 times higher at $28.2 billion.
Buffett’s annual letter is quite an event for Berkshire’s investors and his fans around the world. The letters have come out every year since 1965 when he first took control of Berkshire Hathaway, then just a textile company. The letters, known for his investing wisdom, and humour, are in fact compiled in a book that has a 4.6 rating on Goodreads, and a paperback retails at $34.99 on Amazon.com.
In 2017, Berkshire saw its net worth grow $65.3 billion, and it registered a windfall of $29 billion from a tax bill that the U.S. Congress passed in December, last year.