Warren Buffett, born in 1930, is widely regarded as one of the greatest investors of all time. He bought his first stock at the age of 11, and by 1965, he was running his own investment firm, Berkshire Hathaway. Berkshire Hathaway has grown significantly over the years. Today, it owns several companies outright and has a portfolio of 47 publicly traded stocks and securities.
Berkshire Hathaway, however, stands out as it could become the first non-technology company in the United States to achieve a $1 trillion market capitalization. With a compound annual growth rate (CAGR) of 19.8% since 1965, Berkshire’s stock has climbed to a valuation of $922 billion.
Warren Buffett’s Investment Strategy: Simple Yet Powerful
Warren Buffett is known for his straightforward and highly effective investment strategy, often referred to as value investing. This approach involves purchasing high-quality companies at reasonable prices and holding onto them for the long term.
Buffett looks for companies with strong profitability, consistent growth, competent management, and shareholder-friendly policies such as stock buybacks and dividend payments. For investors interested in income generation, understanding how to get dividends from stocks is crucial, as it allows them to benefit from a steady stream of returns while holding their investments.
One of the keys to Buffett’s success is his long-term perspective. He understands the power of compounding, where the returns on an investment generate additional returns over time. This principle is evident in Berkshire’s investment in Coca-Cola. Between 1988 and 1994, Berkshire invested $1.3 billion in Coca-Cola shares, and today, that investment is worth an astounding $27.5 billion.
Beyond the capital gains, Berkshire benefits from significant dividend income. In 2023 alone, Coca-Cola paid Berkshire $736 million in dividends, and that amount is expected to grow even more this year.
A Track Record of Outperformance
Berkshire Hathaway’s stock has delivered exceptional returns over the years. Between 1965 and 2023, its stock price surged by an unbelievable 4,384,748%, translating to a compound annual growth rate (CAGR) of 19.8%. To put that into perspective, the S&P 500, a common benchmark for the stock market, gained 31,223% over the same period, with a CAGR of 10.2%.
In simpler terms, if you had invested just $1,000 in Berkshire stock in 1965, your investment would have grown to an astonishing $43.8 million by the end of 2023. In contrast, the same $1,000 investment in the S&P 500 would have grown to $313,230.
Berkshire continues to outperform the S&P 500. So far in 2024, Berkshire’s stock has gained 19.1%, compared to 12.7% for the S&P 500. This strong performance is supported by Berkshire’s robust financials.
In the first half of 2024 (ending June 30), Berkshire generated $183.5 billion in revenue, a 3.1% increase from the same period in the previous year. Of this revenue, over $76.3 billion came from sales and services from its various businesses, while $43.4 billion was derived from insurance premiums. The company’s energy and utilities businesses contributed an additional $35.7 billion.
Berkshire also reported $43.3 billion in net earnings during the first half of 2024, underscoring its profitability. Although its revenue growth in 2024 has been modest, the company’s long-term performance speaks for itself. In 1965, Berkshire generated $49.3 million in revenue, and Wall Street analysts expect that figure to surpass $368.6 billion by the end of 2024.
Why Berkshire Hathaway Could Join the $1 Trillion Club Soon
As of now, Berkshire Hathaway has a market capitalization of $922 billion. To reach the $1 trillion mark, its stock needs to gain just 8.5%. Given its impressive track record of 19.8% annual growth over the past 58 years and its 19.1% gain in 2024 so far, it’s very likely that Berkshire will hit this milestone within the next year. In fact, it could happen within the next six months.
One potential obstacle is that Berkshire is currently sitting on a record $277 billion in cash, partly due to its recent sale of Apple stock. While cash typically offers lower returns than growth assets like stocks, it also positions Berkshire to capitalize on new opportunities that could drive its long-term growth.
Furthermore, Berkshire is expected to earn record dividends from its top holdings this year, as companies like Apple, Bank of America, American Express, and Coca-Cola have all increased their payouts. Additionally, the U.S. Federal Reserve may lower interest rates up to three times by the end of 2024, which could benefit Berkshire’s businesses in sectors like consumer goods, transport, and logistics, as they are sensitive to economic growth.
Finally, Buffett authorized the repurchase of $2.9 billion worth of Berkshire stock in the first half of 2024. This move reflects his confidence that the conglomerate remains a valuable investment. Since 2018, Berkshire has repurchased nearly $78 billion of its stock, more than Buffett has invested in any other single stock.
In conclusion, Berkshire Hathaway’s strong financial performance, diversified portfolio, and prudent investment strategy make it a strong candidate to join the exclusive $1 trillion club within the next year.
Dariel Campbell is currently an English instructor at a university. She has experience in teaching and assessing English tests including TOEFL, IELTS, BULATS, FCE, CAE, and PTEG. With over a decade of teaching expertise, Dariel Campbell utilizes his knowledge to develop English lessons for her audience on English Overview.
