Could investing $10,000 in Warren Buffett’s Berkshire Hathaway (BRKA +1.34%) (BRKB +1.22%) stock make you a millionaire? It certainly could, but there are a few caveats to consider.
Over the 60-some years when he was in charge of Berkshire (he recently stepped down from the CEO role at age 95), the S&P 500 (^GSPC +0.78%) index of 500 of America’s biggest companies gained about 39,000% (10.4% annually, on average), while Berkshire Hathaway grew in value by 5,500,000% (nearly 20% annually).
Image source: The Motley Fool.
Getting to $1 million
If you made a single $10,000 investment in Berkshire Hathaway stock and it grew by 20% annually for the next 25 years, you’d end up with close to a million dollars. Don’t do that, though, expecting that result — because Berkshire is huge compared to what it used to be, and it’s growing more slowly these days.
Over the past five years, for example, it averaged annual gains of 14.8% — well above the stock market’s long-term average annual gain of close to 10% but below the long-term average.
Berkshire Hathaway
Today’s Change
(1.22%) $5.87
Current Price
$487.23
Key Data Points
Market Cap
$1.0T
Day’s Range
$480.00 – $489.15
52wk Range
$455.19 – $542.07
Volume
225K
Avg Vol
4.8M
Gross Margin
23.63%
Since there’s no way to know exactly how rapidly Berkshire will grow going forward, here’s how your money could grow at a few growth rates — if you sock away $1,000 per month into stocks:
|
Investing $1,000 per month ($12,000 annually) for |
Growing at 8% annually |
Growing at 10% annually |
Growing at 12% annually |
|---|---|---|---|
|
Five years |
$70,399 |
$73,261 |
$76,234 |
|
10 years |
$173,839 |
$191,249 |
$210,585 |
|
15 years |
$325,825 |
$381,270 |
$447,357 |
|
20 years |
$549,144 |
$687,300 |
$864,629 |
|
25 years |
$877,271 |
$1,180,165 |
$1,600,006 |
|
30 years |
$1,359,399 |
$1,973,928 |
$2,895,992 |
|
35 years |
$2,067,802 |
$3,252,292 |
$5,179,962 |
|
40 years |
$3,108,678 |
$5,311,111 |
$9,205,097 |
Data source: Calculations via Investor.gov’s calculator.
So clearly, if you can be diligent about it over many years, you can amass a million dollars in Berkshire or other stocks, even if they grow at 8%.
Why Berkshire Hathaway?
So — why invest in Berkshire Hathaway? Well, you might not find it on every list of great growth stocks these days (it’s probably still on a couple of them), but if you’re at all skittish about the stock market’s near-term prospects, it could give you peace of mind — because it was built to last.
Berkshire Hathaway wholly owns dozens of businesses, including GEICO, Benjamin Moore, NetJets, Dairy Queen, McLane, and the entire BNSF railway. It also owns sizable stakes in dozens of publicly traded companies, including Occidental Petroleum, American Express, Coca-Cola, and Bank of America.
With Buffett having stepped back, Greg Abel is now in charge, and that shouldn’t have anyone worrying too much. He has worked under Buffett for a long time and, for many year,s has been the heir apparent.
It’s true that Berkshire shares are not bargain-priced at the moment, but they do seem reasonably valued, with a recent forward-looking price-to-earnings (P/E) ratio of 22, just a mite above the five-year average of 21. The stock doesn’t pay a dividend, but some speculate that Abel might change that.
If you’re intrigued, you might take a closer look at the company. You could invest in it now, invest in it gradually, or just add it to a watch list.