In 1965, Warren Buffett acquired control of a New England textile business calle
ID: 2655656 • Letter: I
Question
In 1965, Warren Buffett acquired control of a New England textile business called Berkshire Hathaway for about $10 a share. Today the stock sells for around $90,000 a share and Mr. Buffett is the wealthiest person in the United States. The stock has never paid a dividend. How does this amazing success fit the theory that the value of a stock is based on the present value of the expected future stream of dividends? Visit www.berkshirehathaway.com and get familiar with the company. Tell me what you think the future holds for the company. Read his letters to his shareholders (they are in the Content Area) and what he calls the Berkshire Hathaway “owner’s manual” (also in the Content Area). In an age of hi-tech why did he recently buy the Burlington Northern Railroad for $44 billion? How will the company fare after his inevitable departure?
Explanation / Answer
Some corporations choose to reinvest earnings rather than pay out dividends. By not paying dividends it gives the corporation more money to invest in other ventures which in turn helps to increase the share value for its shareholders. In the end shareholders getting their money all at once instead of through out the year.
Berkshire hathaway inc. is a holding company they own or partially own other companies. With stock prices as high as they are and the vast life of subsidies Berkshire hathaway is invested in, I think this company will continue to be successful in the future and be able to weather a storm presented to them.
Moving products by rail is the cheapest way to move large amount of goods, even cheaper than moving products by trucks. Buffet knows that US has a poor energy policy that makes it difficult to move crude oil out of the biggest oil shale industries such as ( bakken, eagle ford, utica) in the US. Rail also is able to move large amount of coal to make electricity across the country. Buffet seems to actually have a simple investment philosophy, finding out what works and where there is a need for a service, he buys low and sells high.
Buffet believes that railroads represent the furture. Buffet also implies that , they've already invested heavily in their infrastructure and technology, and they plan to invest more to keep up with the growing demand. "They are the only mode of freight transportation that can handle growth. what's not to like about that?".