If investors had purchased $1000 worth of Berkshire Hathaway stock in 1975, it would be worth $7.5 million today. But how did BRK’s equity look back then? John Rekenthaler asks that question in an archived article from 2018 republished recently in Morningstar.
During the first 5 years of Warren Buffett’s leadership (1966-70), BRK skyrocketed. It was more volatile than the S&P 500, but volatile in the right direction. The next 5 years, however, were a different story. It dropped over the next 2 years, then surged from 1973 to 1975. The following decade brought a modest real profit of just over 2% annually. In short, BRK’s stock market performance gave away few hints of Buffett’s genius, with little suggestion of the investment machine it would become.
The only real clue, the article contends, was the company’s book value: something that investors can’t purchase, instead relying on the expectation that, over time, the company’s stock price will move in tandem with its book value, which of course BRK’s has.
The lessons learned from this examination, the article concludes, is don’t make decisions on 5-year returns, and that 10-year totals are better, but still imperfect.
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