Berkshire's Share Price Tops $200,000, Extending Buffett's Record

Image: Berkshire's Share Price Tops $200,000, Extending Buffett's Record (Rick Wilking/Reuters/Landov)

Thursday, 14 Aug 2014 11:06 AM

 

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The price of Berkshire Hathaway Inc. shares topped $200,000 each for the first time Thursday, further validating Chairman Warren Buffett’s decades-long bet on the U.S. economy.

The Class A shares climbed 1.6 percent to $202,850 at 4:15 p.m. in New York. That’s more than 60 times Seaboard Corp., the agribusiness and transportation company that has the second-highest price among stocks listed on U.S. exchanges.

“It’s a huge milestone,” said Buffett biographer Andrew Kilpatrick. “It proves how far things have come, and you start to wonder, and imagine in your wildest dreams, ‘Where is this thing going?’”

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Buffett has shunned the share splits favored by other large companies such as Apple Inc. and Wal-Mart Stores Inc., saying a high price discourages short-term speculation. He also rejected a call to institute a dividend and rarely repurchases shares. That’s given him funds to build the company into the fifth- largest in the world by market value through acquisitions and stock picks.

Berkshire reached the latest milestone about seven years and 10 months after the stock first reached $100,000. That’s about a year less than it took to double from $50,000. Omaha, Nebraska-based Berkshire beat the Standard & Poor’s 500 Index in both periods.

In the more recent span, Buffett pushed the company into regulated capital-intensive businesses such as utilities and railroad BNSF, which he acquired in 2010 for more than $26 billion. He also propped up companies such as Goldman Sachs Group Inc. and General Electric Co., which turned to Berkshire for capital in the 2008 financial crisis when other sources of funding dried up.

‘Intrinsic Value’

Berkshire’s workforce climbed to more than 330,000 at the end of 2013. Net income jumped to $19.5 billion last year from $11 billion in 2006.

The stock rallied about 17 percent since Feb. 28, the day before Berkshire released its annual report, in which Buffett wrote that the company’s actual worth has been rising faster than suggested by metrics such as book value, a measure of assets minus liabilities.

“As I’ve long told you, Berkshire’s intrinsic value far exceeds its book value,” Buffett wrote in his letter. “Moreover, the difference has widened considerably in recent years.” Buffett has said intrinsic value, a subjective metric that accounts for the amount of cash that can be taken out of a business in its lifetime, is a better tool for evaluation.

Berkshire extended its gains after reporting Aug. 1 that net income in the three months ended June 30 climbed 41 percent to $6.4 billion, a quarterly record for Buffett. Operating profit, which excludes some investment results, beat analysts’ estimates.

Utilities, Railroad

Buffett has sought to tie his company’s fortunes to the prospects of the U.S.  A rebound in the world’s largest economy has boosted the value of Berkshire’s stock portfolio and helped propel growth at operating business that include insurers, manufacturers, retailers, utilities and BNSF.

A high stock price presents a barrier to entry for short- term investors and encourages shareholders to think like owners, Buffett has said.

“Were we to split the stock or take other actions focusing on stock price rather than business value, we would attract an entering class of buyers inferior to the existing class of sellers,” he wrote in a letter to shareholders in 1984, when the Class A shares traded for about $1,300.

Munger, Gottesman

While Buffett still controls the biggest stake in the company, and directors like Charles Munger and David Gottesman remain among the top investors, the issuance of Class B stock made owning a piece of Berkshire affordable to a larger group of investors.

Buffett created the equities in 1996 by dividing Class A shares by 30 to prevent fund managers from carving them up in trusts and selling lower-priced interests. He split the B shares 50-for-1 in 2010 to help the takeover of the railroad. The split let BNSF investors convert more of their holdings into Berkshire shares, reducing tax costs.

Class B shares rose to $135.30 Thursday. Buffett holds about 38 percent of the A shares, which are convertible at any time into 1,500 B shares each and hold 10,000 times the voting rights of one of the lower-priced securities.

Buffett is the second-richest man in the U.S. with a fortune valued at about $65 billion, according to the Bloomberg Billionaires Index. He has committed almost all of his wealth to charities, including the Bill & Melinda Gates Foundation, which works to reduce hunger, fight disease and improve education.

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