Berkshire Hathaway's 100,000% Return Is No Surprise

Berkshire Hathaway Inc. signage on the floor of the New York Stock Exchange (NYSE) in New York, US, on Tuesday, December 31, 2024

(Image credit: Michael Nagle/Bloomberg via Getty Images)

Editor's note: This is part nine of a 13-part series about companies whose shares have amassed 100,000% returns for investors and the path taken to generate such impressive gains over the long term. See below for links to the other stocks in this series.

The least surprising entry on this list of stocks with 100,000% returns is likely Berkshire Hathaway (BRK.B). Its aw-shucks leader, Warren Buffett, dispenses home-spun wisdom and has a knack for making money. Notably, he does this with his own money as well as other people's.

In consummate Warren Buffett style, he said the worst investment he ever made was the purchase of Berkshire Hathaway itself, a textile company most famous for making shirts. Buffett's reasoning was the money he invested in textiles, if diverted toward insurance companies would have generated $200 billion in returns over the next 45 years.

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Buffett has always been attracted to the insurance business, owning in whole or in part National Indemnity Company, GEICO, Gateway Underwriters, Berkshire Hathaway Direct Insurance, BoatU.S., and General Re, among many others.

What is the fascination with insurance? In Buffett's mind, insurance is the opposite of a loan. In the lending business, the lender extends say $100,000 and then collects it back with monthly payments.

In insurance, the premium payments, known as "float" come in first, and the payment of the $100,000 insurance benefit arrives much later. And with some insurance products, such as term life insurance, the benefit is never paid at all.

But in Buffett's mind, getting his hands on float is not the end of the process, but the beginning of the process. All that incoming float can be used to invest in or acquire other businesses that generate float or other cash flows.

That's why there are so many insurance companies in the Berkshire portfolio. And the strategy has worked too. In 1970, Berkshire's incoming float was $39 million. In 2023, it was $169 billion.

That's also why the 2008 biography of Warren Buffett was called The Snowball: Warren Buffett and the Business of Life. While the reinvestment of profits and cash flows into other businesses that generated profits and cash flows took time to mature, the long-term effect was wealth grew upon itself like a snowball rolling down a hill.

Like any good investor, Buffett believed in diversification. That's why he invested widely in other companies from furniture makers to candy companies.

Three famous investments include Apple (AAPL), Coca-Cola (KO), and American Express (AXP). And in these investments, we can see the snowball strategy at work.

Coca-Cola is a pretty sleepy company these days. It appreciates, but slowly. In the past five years, shares have grown by about 31%. But if you have owned it for 36 years like Buffett has, it's not so sleepy. His $1.3 billion investment in 1988 is now worth $24.5 billion.

And perhaps most exciting of all, Coca-Cola paid Berkshire Hathaway $736 million in dividends in 2023.

What Buffett saw was one of the most recognized brands on the planet yes, but also a disciplined company with a cost structure that would enable the company to pay and grow a dividend.

What was a split-adjusted annual dividend of 7.5 cents per share in 1988 has grown to $1.84. Since Coke has increased its dividend every year for at least the last 25 years, it's safe to say that Mr. Buffett's $736 million dividend haul will grow over time.

Even Apple, which is a consumer electronics company, has at its core, a compounding effect that attracted Mr. Buffett.

As the Apple ecosystem grew, the earnings from upgrades and services became more reliable, and accelerated, driving earnings per share, which in turn have driven Apple's share price. Mr. Buffett's investment of approximately $25 billion in 2016 is now valued at more than $135 billion.

Note: This content first appeared in Louis Navellier's latest book, The Sacred Truths of Investing: Finding Growth Stocks that Will Make You Rich, which was published by John Wiley & Sons, Inc.