Greetings, future value investor! Ready to dive into one of the most fascinating stories in the history of finance? The acquisition of Berkshire Hathaway by Warren Buffett isn't just a tale of a stock purchase; it's a legendary lesson in patience, value investing, and even a little bit of emotional decision-making.
So, you want to know how much did Warren Buffett buy Berkshire Hathaway for? The answer isn't a single number. It's a journey that began with a cigar-butt and ended with the creation of an empire. Let's break it down, step by step.
Step 1: The First Spark - The Cigar-Butt Investment (1962)
Imagine you're walking down the street and you see a discarded cigar butt with one last puff left in it. It's not a great cigar, but hey, that last puff is free. This is the famous "cigar-butt" investing philosophy that Warren Buffett learned from his mentor, Benjamin Graham. He sought out companies that were so cheap they were trading for less than their liquidation value.
In 1962, Buffett, through his investment partnership, Buffett Partnership Limited (BPL), began buying shares of Berkshire Hathaway. This was not the conglomerate we know today, but a struggling textile manufacturer in New England.
The Price: The shares were selling for around $7.50 per share.
The Value: At the time, the company's "per-share working capital" (current assets minus all liabilities) was around $10.25, and its "book value" was approximately $20.20.
Buffett saw this as a classic cigar-butt opportunity. He could buy a piece of the company for far less than the value of its assets. His initial plan wasn't to take over the company, but to make a quick profit when management decided to close down the mills and buy back the shares at a higher price.
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| How Much Did Warren Buffett Buy Berkshire Hathaway For |
Step 2: The Insult and the Aggressive Buying Spree (1964-1965)
This is where the story takes a dramatic turn. In 1964, Buffett made an offer to sell his shares back to the company at a price he believed was fair.
The Deal: Buffett orally agreed to sell his shares back to Berkshire Hathaway's management at $11.50 per share.
The Betrayal: The formal tender offer came in, but the price was a frustratingly low $11.375 per share.
This seemingly small difference of 12.5 cents per share infuriated Buffett. He felt insulted and decided to change his entire strategy. Instead of selling, he began to aggressively buy more shares to gain a controlling interest and oust the management that had wronged him.
Tip: Skim once, study twice.
Step 3: Taking Control and the Average Purchase Price (1965)
From 1964 to 1965, Buffett's investment partnership went on a buying spree, accumulating a significant stake in Berkshire Hathaway. On May 10, 1965, he officially took control of the company.
The Average Price: While the initial purchases were at a low price, the aggressive buying drove up the average cost. Buffett's investment partnership took control of the company at an average price of $14.86 per share.
It's important to note that Buffett didn't buy 100% of the company. He bought enough shares to have a controlling interest and the power to make decisions. He had accumulated around 49% of the shares, effectively controlling the entire company's assets and book value for an investment of approximately $8.3 million.
Step 4: The Aftermath - A "Dumb" Mistake that Built a Fortune
Ironically, Buffett has since called the acquisition of Berkshire Hathaway his "dumbest" investment, not because of the price he paid, but because it tied his capital to a declining textile business. He spent two decades trying to turn the textile business around before finally shutting down the last mill in 1985.
However, the "mistake" became the vehicle for his legendary investing career. He used the cash flow from the struggling textile mills and the "float" from the insurance companies he later acquired to buy other businesses and make investments. This is how Berkshire Hathaway transformed from a failing textile company into the multi-trillion-dollar conglomerate it is today.
10 Related FAQs:
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How to calculate the return on Warren Buffett's initial investment?
While a precise calculation is complex due to the ongoing acquisitions and business growth, a simple comparison of the initial purchase price to the current share price shows a mind-boggling return. A share bought at $19 in 1965 is now worth over $700,000 (Class A share). This represents a compound annual growth rate of nearly 20% over almost 60 years.
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How to buy Berkshire Hathaway stock today?
You can buy Berkshire Hathaway stock through a brokerage account. There are two classes of stock: Class A (BRK.A) and Class B (BRK.B). Class A shares have a very high price per share (currently over $700,000), while Class B shares are much more affordable and were created to make the stock accessible to smaller investors.
How to understand the difference between Class A and Class B shares?
Class A shares (BRK.A) have a higher price, more voting rights, and are not subject to stock splits. Class B shares (BRK.B) are much cheaper, have fewer voting rights, and can be split. The value of a Class B share is approximately 1/1500th of a Class A share.
Tip: Let the key ideas stand out.
How to learn more about Warren Buffett's investing philosophy?
Read his annual letters to shareholders, which are a masterclass in business and investing. You can also read biographies like "The Snowball: Warren Buffett and the Business of Life" by Alice Schroeder and follow his interviews and public appearances.
How to find companies like the old Berkshire Hathaway?
Buffett's "cigar-butt" investing style is difficult to replicate today, especially with the amount of money he manages. However, the core principle of finding undervalued companies with a margin of safety remains a cornerstone of value investing. You can look for companies with low price-to-book ratios or low price-to-earnings ratios, but always do thorough research to understand the business's fundamentals.
How to invest in a company for the long term, like Buffett?
Focus on businesses with a strong "moat" (a sustainable competitive advantage), predictable earnings, good management, and a track record of profitability. Don't try to time the market. Buy good businesses at a fair price and hold them for the long haul.
How to read a company's financial statements like an investor?
QuickTip: Keep a notepad handy.
Focus on key metrics like the balance sheet (assets, liabilities, and equity), income statement (revenue, expenses, and profit), and cash flow statement. Pay close attention to things like debt, cash on hand, and return on equity.
How to get a job at Berkshire Hathaway?
Getting a job at the corporate headquarters is famously difficult, as the team is very small. Most of the company's employees work for its subsidiaries. To work for one of the subsidiaries, you would apply directly to that company.
How to attend the Berkshire Hathaway annual shareholder meeting?
The meeting, often called "Woodstock for Capitalists," is held in Omaha, Nebraska, and is open to shareholders. You need to own at least one share (either Class A or Class B) to get a credential. It's a great opportunity to hear from Buffett and his team directly.
How to apply Buffett's principles to my own investing?
Start small, focus on what you understand, and avoid following fads. Be patient, disciplined, and unemotional. The most important lesson is to think of stocks as ownership in a business, not just a ticker symbol to be traded.
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