Berkshire Hathaway's Average Investment Return Explained

Berkshire Hathaway, led by legendary investor Warren Buffett, is one of the most successful investment firms in history. Since Buffett took control of the struggling textile company in 1965, its investing acumen has turned it into one of the largest public companies in the world, with a market capitalisation of over $700 billion as of 2023. That growth begs a simple question: just what kind of returns have Berkshire and its shareholders enjoyed over more than five decades? Past performance never guarantees future results, but Berkshire's track record offers a rare window into the power of value investing.

How Berkshire's Structure Shapes Investor Returns

Unlike a typical investment fund, Berkshire pays no dividends. Instead it reinvests every dollar of profit back into its operations and investment portfolio. For shareholders, the only way to realise a gain is to sell Berkshire shares for more than they paid. So while the company itself earns tremendous returns each year, investors capture that growth only indirectly, through share-price appreciation. Even so, Berkshire's class A shares delivered a jaw-dropping annualised return of 20.3% from 1965 to 2021 – more than double the S&P 500's 9.8% a year over the same period.

A Tale of Two Share Classes

Originally a struggling New England textile business, Berkshire shares traded modestly with little volatility in the early 1960s. That changed in 1965, when Warren Buffett began buying shares as part of a turnaround play. For $14 a share in 1965, an investor could buy into what would become one of history's greatest growth engines. Ten years later, in 1975, those same class A shares were worth $380 – a 27-fold increase, excluding dividends.

Today Berkshire has two share classes: class A and class B common stock. When first issued, each class A share represented 200 class B shares. The dual structure was created in 1996 so that smaller investors could take part in Berkshire's growth, since A shares had become prohibitively expensive for most people. By 2010, with A shares near $120,000, the conversion ratio changed to 1,500 B shares per A share. In 2023, A shares traded above $475,000 while B shares changed hands around $315. Both classes carry the same underlying value and voting rights; the huge price gap simply reflects how many shares of each designation are outstanding.

Book Value: Berkshire's Own Scorecard

Berkshire publishes detailed financial statements, and one figure matters more than most: book value per class A share, reported every quarter. Book value is an accounting measure of assets minus liabilities – in other words, shareholder equity. For Berkshire, book value per share has risen exponentially, in lockstep with the stock's market-crushing performance, because it reflects the returns generated by the underlying portfolio. Between 1965 and 2021, Berkshire compounded book value at 20.1% a year. That consistency is why many observers call book value the single best measure of the company's long-term performance.

What Return Has Berkshire Really Earned?

Pinning down the exact annual return on Berkshire's invested capital over 50-plus years is tricky, for two reasons. First, because Berkshire pays no dividends, its investing performance shows up mainly through assets – stocks and whole businesses – that don't throw off immediate cash. Second, Berkshire's large cash position ($109 billion as of September 2022), held deliberately for opportunistic bets, has to be separated from money actually invested in stocks and companies.

Strip out the cash and focus on holdings such as Apple, Bank of America and Coca-Cola, plus wholly owned subsidiaries like Geico and the Burlington Northern railroad, and various analyses put Berkshire's average annual investing return somewhere between 20% and 22% going back to the mid-1960s. Critics note that part of that return comes from leverage – borrowing cheaply to invest – rather than from stock-picking alone. Others counter that the record simply confirms Buffett's standing as one of history's greatest capital allocators.

The Three Engines Behind Berkshire's Returns

Berkshire's returns come primarily from three sources:

1. Public stocks. Berkshire holds a $350-billion-plus public stock portfolio, roughly 47% of the company's total market value. Top positions – Apple (about 42% of the portfolio), Bank of America (14%) and American Express (9%) – reflect Buffett's preference for U.S. financial, consumer and technology names. Over the years he has taken large stakes in the likes of Coca-Cola, Wells Fargo and Gillette, so often that rivals coined the phrase "widow maker trade" for battling a Berkshire-owned brand.
2. Private companies. Berkshire owns dozens of wholly private businesses, from battery maker Duracell to jet operator NetJets and one of America's biggest auto insurers, Geico. Together, these subsidiaries account for close to half of Berkshire's total market cap. Return data for private holdings is hard to obtain, but franchises such as industrial giant Marmon Holdings and furniture retailer RC Willey speak to their value.
3. Preferred stock and debt. Beyond common shares, Berkshire invests in other companies' preferred stock and debt. Preferred stakes in Bank of America, Goldman Sachs and General Motors show Buffett using Berkshire's fortress balance sheet in times of distress, such as the 2009 financial crisis, while debt from issuers like Delta Air Lines generates fixed income. In effect, Berkshire earns lucrative returns by acting as a lender of last resort.

More Than Just the Stock Market

A common misconception is that all of Berkshire's returns come from public equities like Apple stock. In reality, the company earns huge profits every year from privately owned businesses that will never trade publicly – among them some of America's largest commercial insurers, led by Geico, plus manufacturers and retailers such as paint maker Benjamin Moore, Duracell and boat builder Forest River.

Unlike pure stock-pickers, Berkshire's three-pronged approach – public stocks, private companies, and opportunistic debt and preferred stakes – gives Buffett an unusually diverse set of outlets for capital. Few investment vehicles can deploy money across private-equity deals, corporate debt and blue-chip dividend stocks all at once. That flexibility, paired with Buffett's eye for value, is why Berkshire has compounded capital faster and more consistently than almost any entity in corporate history.

Can Berkshire Keep It Up?

Given Berkshire's unmatched run over 50-plus years, the obvious question is whether it can continue. Buffett first addressed the challenge in his 2006 letter to shareholders: because the company retains all earnings, its investable assets grow relentlessly. When he took control in 1965 he managed $22 million; today he oversees nearly $350 billion in publicly traded stocks alone, plus tens of billions more in cash and private businesses. At that scale, finding new opportunities big enough to move the needle gets progressively harder.

Berkshire's future returns must inevitably drift toward the average market return, rather than its historical 20%-plus pace.

Buffett has been blunt that Berkshire's future returns must trend down toward the market average. With one of the largest market caps in the world, basic arithmetic means the company has fewer places to put tens of billions in fresh capital each year. Smaller, nimbler funds hunting microcaps and emerging industries still have paths to 20-30% annual returns that Berkshire lost long ago. In his 2021 letter, Buffett again urged shareholders to temper their expectations.

Berkshire After Buffett

Leadership succession is the other question mark. Buffett's investing brilliance – decades of prescient bets – has always been seen as a major driver of Berkshire's success, so shareholders have long debated whether the 20%-plus annual record could survive once he steps back, a debate that sharpened as Buffett entered his early nineties.

In May 2018, Berkshire named veteran executive Ajit Jain to oversee all insurance operations and Greg Abel as Vice Chairman for everything else – a move widely read as anointing Abel as successor-in-waiting. At 68, Abel is a younger steward who could guide Berkshire for the next couple of decades. He lacks Buffett's once-in-a-generation reputation, but his three-plus decades running Berkshire's energy businesses give him a deep operational command of the company he would inherit.

Whatever the future holds, the principle behind Berkshire's record – buying quality businesses for less than they are worth – still applies to any stock. You can gauge whether a company trades below its intrinsic worth with our Fair Value Calculator.

Key Takeaways

• Berkshire's class A shares compounded at 20.3% a year from 1965 to 2021, versus 9.8% for the S&P 500 – more than double the market's return.
• Because Berkshire pays no dividends, shareholders capture that growth only through share-price appreciation, mirrored by 20.1% annual book-value growth over the same span.
• Returns flow from three engines – public stocks, wholly owned private businesses, and opportunistic debt and preferred stakes – not just headline holdings like Apple.
• Sheer size now works against Berkshire, and Buffett himself expects future returns to drift toward the market average.
• Succession to Greg Abel, and life after Buffett, is the biggest open question for the next chapter.