Warren Buffett might be the greatest investor the world has ever seen. If anything, he probably has the most public resume to make his argument. Buffett's holding company, Berkshire Hathaway (BRK.A -0.09%) (BRK.B -0.24%), offers decades of evidence of his Wall Street magic.
Had you invested just $1,000 in Berkshire Hathaway when it went public in 1980, you'd have over $2.3 million today. That's genuinely life-changing returns on a modest investment.
However, Berkshire Hathaway is worth nearly $1 trillion today, and Buffett recently turned 94. Can the stock still turn long-term investors into millionaires?
Berkshire consistently creates value
Buffett doesn't have an easy job. Berkshire Hathaway is a holding company, which is a business entity that owns various other businesses and assets. Berkshire Hathaway owns dozens of private companies, including GEICO Insurance, railroads, energy pipelines, manufacturers, and consumer-facing brands like Dairy Queen and Fruit of the Loom. The company also operates an enormous stock portfolio with nearly four dozen positions worth approximately $316 billion. Buffett and his management team must act as conductors, pulling and pushing the right buttons and levers so that all these moving parts create value for Berkshire and its shareholders.
Berkshire has been consistently successful at this, boosting its book value for decades through the economic ups and downs.
BRK.A Tangible Book Value (Annual Per Share) data by YCharts.
This steady value creation is driving the company's remarkable stock performance. Sure, Berkshire is a behemoth today, but the stock can create wealth for you if management wisely allocates Berkshire's vast financial resources to increase its book value.
Berkshire is ready for the next big opportunity
Buffett seemingly hasn't lost his touch or instincts in his old age.
You could credit Berkshire's soaring book value over the past decade to Buffett's investment in Apple, arguably his most extraordinary feat to date. Berkshire bought Apple in early 2016, when it traded at roughly 12 times earnings. Since then, Apple has been a multibagger, returning over 860%. The investment grew to be worth several hundreds of billions of dollars, and Buffett began selling it off earlier this year as Apple stock approached a price-to-earnings ratio of 35. That's the definition of "Buy low, sell high."
Not only did Berkshire capture much of its Apple returns by selling off a chunk of the stock, but Berkshire has financially equipped itself to be opportunistic again. The company now has an estimated $277 billion in cash, approximately 28% of its market cap today!
Knowing Berkshire's track record, there's a good chance that Buffett or Berkshire's management team will eventually use that money well, and shareholders will benefit.
Should investors be concerned about Buffett's age?
Approaching Buffett's age as respectfully as possible, it's fair to wonder about Berkshire's long-term leadership. After all, Buffett is 94, and while he seems in good health and as sharp as ever, time eventually defeats us all. That said, investors shouldn't avoid Berkshire simply because Buffett won't be around forever to lead the ship.
It would be insulting to pretend that Berkshire isn't aware of this -- the company has a succession plan. Buffett has already tapped Greg Abel to lead Berkshire after he's gone. Abel has been with Berkshire for over 25 years and has undoubtedly played the student role under Buffett's mentorship.
Will Abel allocate Berkshire's capital as well as Buffett has? There is only one Buffett, so that's a valid concern. However, Berkshire is one of the world's most financially and fundamentally robust companies. It could create value for its shareholders for decades to come. Consider having some faith until there's a reason not to.
Is Berkshire a millionaire-maker?
Berkshire can continue growing -- there are always additional investments or businesses to buy that can increase its book value. Don't forget that the companies within Berkshire also grow over time.
It's also fair to acknowledge that at a worth of nearly a trillion dollars, Berkshire is likely too big to generate the same returns it once did. The days of Berkshire turning $1,000 into a million dollars are probably over. However, Berkshire can still build wealth over time as part of a diversified portfolio.
Anyone with a long-term time horizon should consider buying and holding this unique company.
