In 1965, Warren Buffett acquired control of a New England textile business calle
ID: 2659278 • 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 $175,000 a share and Mr. Buffett is the second richest person in America.
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 Mr. Buffett's letters to his shareholders.
In an age of hi-tech why did he buy the Burlington Northern Railroad for $44 billion? How will the company fare after his inevitable departure?
Explanation / Answer
This was not only the largest acquisition the "Sage of Omaha" had pulled off in his 44 years running Berkshire Hathaway, but also a solid, operating investment with real profits, real cashflows and, Buffett argued, a real future.
Or so it seemed. Within hours, the hastily-compiled deal to buy America's second-largest railway company began to be questioned.
First, credit rating agency Standard & Poor's threatened to remove Berkshire's triple-A credit rating, saying that the "transaction will decrease the liquidity and capital adequacy of the insurance operations".
A shareholder lawsuit accusing Burlington Northern's directors of rushing the decision to sell Buffett the 77.4pc of the rail company he doesn't already own, swiftly followed. The deal, it would seem, was not as popular as Buffett might have thought.
It comes just 12 months after Berkshire's investors suffered the worst year on record since Buffett took the helm in 1965, prompting the question: has the world's second-richest man taken a gamble too far?
Buffett's model has always been based on investing in things he understands. The freight rail business