Berkshire Hathaway's record is better than that of the best mutual funds. From the time its chairman, Warren Buffett, purchased the company, in 1965, through 2008, BRK has provided a 20.3% compound annual return after taxes, based on the increase in its book value per share.* (By comparison, the S&P 500 Index in the same period, without taxes but with dividends included, performed at an 8.9% rate, compounded annually. 80% of actively managed mutual funds do not match the S&P 500 Index.) A $10,000 investment in Berkshire Hathaway when Buffett took over, more than 43 years ago, and assuming no subsequent sales of shares, would have been worth $28,000,000 in 2008 end of year book value.
But BRK's book value per share is now only 80.0% of its market price. Based on current market value, such a lucky investor would today have over $35,000,000. We judge whether a mutual fund is likely to be a good investment partly on the basis of its historical performance, looking back at how it has done in 1, 3, 5, or 10 year periods. Only a handful of mutual funds exist that have a 10-year record of over 20% compounded annual performance. But there is no mutual fund in the world with such a record for even half as long as Buffett has been at the helm of BRK.
Some, however, suggest that now is not the time to purchase Berkshire Hathaway. It has had a good run, they say, but now its best times are behind it, and the shares will shrink dramatically after Buffett passes on. Mutual fund managers are frequently replaced. Does this mean we ought never buy a mutual fund that has a good record? In fact, Buffett has a trained and experienced management team, well versed in his value-driven investment philosophy, and he has picked the best among them to head the company upon his own death. There may be a drop in share price when he does eventually die, but that will almost certainly just be another good buying opportunity.
A few years before he died, in 1995, my father had used a small fraction of his and Mom's assets to buy a handful of BRK/A shares. "If you can't beat 'em, join 'em," he not so originally advised. Those shares alone would now, even after the 2008 financial meltdown, be worth about half a million dollars. One can always find a rationale for not doing something or not doing it just yet. There may be a cost though for such inaction or delay. Berkshire Hathaway stock is about 45% higher now than its 52-week low. Yet trying to time one's purchase for just when it is down the most may not be the smartest approach in this case. A better tactic might be to buy shares at a number of different times so that the overall average is lower. This should soon be much easier for the average investor, for Berkshire's Class B shares (BRK/B) are due next quarter to have a 50-to-one split, effectively reducing the share price to about $66, based on today's quote. This development is likely to generate increased enthusiasm for the equity.