When I was younger, one of the hooks that motivated me to invest was reading about actual people that held stocks for long periods and saw them grow into large sums. I am older now so I thought I would share my Berkshire experience in case someone may find it useful.
Berkshire hit a milestone yesterday when it closed above a half million dollars per share. Next year will be a different milestone for my wife and I. We bought our first share in March of 1993, twenty-nine years ago, and paid $12,700. It is our longest held stock. I bought additional shares at various times over the years, whenever I felt that the valuation was attractive and I had funds available, but we never sold any shares.
The stock price for my first share has grown at 13.5 percent compounded annually over the last twenty-nine years, a few points better than the S&P 500 (with dividends reinvested) compound annual growth rate of 10.8% during the same period (feel free to correct that number if you feel it is inaccurate; I looked it up on MoneyChimp at http://www.moneychimp.com/features/market_cagr.htm)
My overall return for all my Berkshire shares is a bit better than 13.5% but I am struggling with the math. I have several investments that have generated better returns but none have been as useful to me as Berkshire - I have learned much about very many different things (business analysis, rationality, human nature, progress, disruption, non-linearity, feedback and more) by being associated with Berkshire. With practice and time, investing with Berkshire can make you both wealthy and wise.
I also smile when I realize that Warren’s salary has been only $100,000 per year and unlike a mutual fund, I have not had to pay any taxes on my Berkshire investment, since it has not paid a dividend and I have not sold any shares.
Best regards, David
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Probably more useful to consider Warren’s salary on a per share basis - $100,000 per year is about 7 cents a share, or 14 cents per year per million dollars invested at current stock prices. Quite the bargain in my view.
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Assuming the same growth rate, in 29 years an A share will cost $19,672,066.
And Warren will still be making 100,000 a year.
And I’ll still be buying 
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Just to play devil’s advocate, Warren got paid to manage his money, or at least that’s how he viewed it. Don’t expect that in future.
Just to play devil’s advocate, Warren got paid to manage his money, or at least that’s how he viewed it. Don’t expect that in future.
Such an odd devil, a devil who is more generous than a hedge fund manager! Hedgies are generally managing quite a lot of their own money in their hedge funds, and yet they are charging the other money in their fund 2%/year + 20%/year of the profits generated.
R:)
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And hedgies do such a bad job of wealth creation for their clients!
2% and 20%,
give me a break!
Am so happy to have never gone down that path!
Learning from Warren has been awesome!
Sincerely,
jan
:^)
And hedgies do such a bad job of wealth creation for their clients!
2% and 20%,
give me a break!
Now now, not all hedgies are grossly overpaid hucksters and leeches. (just most of them!)
A few actually earn that fee level, and these days most charge much less.
I ran a hedge fund for a while, and also managed segregated money for an institutional client.
The institutional client had this fee structure:
(1) Any profit this year, returns in the range 0-15%? Pay 12% of the profit to my company, up to the 15% return.
With the usual higher water mark rule: never charged for the same gain twice if it goes up, down, up again.
(2) Any profit this year, over 15%? The fee is 7% of the profits above 15%/year.
This disincentivizes imprudent gambling to hit a really high return.
(3) Any loss this year? My company pays you 2% of the loss, with an uncapped personal guarantee from me.
It certainly added a nice focus on Rule #1.
Which was a good thing, as the contract started in…you guessed it…2008.
They never had a year without a double digit return after fees.
Jim
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Wow Jim - that looks like a very admirable fee structure.
Besides the “high water mark” - which I hardly ever see, I’ve
yet to see the payback of losses.
If I may ask, what went into your thinking for the fee structure?