The United States is home to seven companies worth $1 trillion or more, and all of them are synonymous with cutting-edge technologies like artificial intelligence except one: Berkshire Hathaway (BRK.A -1.45%) (BRK.B -1.54%). It was a troubled manufacturer of textile products before it was scooped up by Warren Buffett in 1965, who has transformed it into one of the most formidable conglomerates in the world.
In fact, had you invested $1,000 in Berkshire stock when Buffett took the helm, it would have been worth a staggering $44.7 million at the end of 2024. An identical investment in the S&P 500 (SNPINDEX: ^GSPC) index would have grown to just $342,906 over the same period.
The stage looks set for another year of outperformance in 2025 because Berkshire stock has already soared by 16%, whereas the S&P 500 is currently down by 2%.
Buffett has authorized the repurchase of $77.8 billion worth of Berkshire stock since 2018, which is twice as much as the conglomerate has invested in any single company in its entire history.
Image source: The Motley Fool.
Buffett uses a simple investing strategy
Warren Buffett is a value investor who loves a bargain, but he's also known to pay fair prices for high-quality companies, which he often holds for the long term. He favors businesses with steady growth, reliable profitability, and strong management teams, but he especially likes those that return money to shareholders through dividend payments and stock buyback programs, because they compound his returns much faster.
Berkshire operates numerous wholly owned subsidiaries like Dairy Queen and Duracell, but it also has a portfolio of 44 publicly traded stocks and securities worth $288 billion, and many of those holdings reflect Buffett's strategy. Coca-Cola is a prime example -- Buffett acquired 400 million shares in the beverage giant for Berkshire's portfolio between 1988 and 1994, at a cost of $1.3 billion. He has never sold a single share, and the position is now worth a whopping $27.5 billion.
Not to mention, Berkshire earned $776 million in dividends from its Coca-Cola position during 2024 alone, so the conglomerate basically recoups its initial investment every two years! That really highlights the power of compound interest over the long term.
Some of Berkshire's other long-term holdings include American Express, Bank of America, Kraft Heinz, Mastercard, and Visa, all of which have been in the conglomerate's portfolio for at least a decade.
Berkshire has spent $77.8 billion on buybacks since 2018
Berkshire's growth has been nothing short of spectacular, but that comes with challenges. For example, it's becoming harder for Buffett and his team to find new investment opportunities with enough growth potential to move the needle because the conglomerate has simply become so large. As a result, Buffett decided to start returning some money to shareholders back in 2018.
Stock buybacks have been Buffett's preferred method as opposed to dividends, because management can execute them at its discretion (whereas dividends are usually paid quarterly on an ongoing basis). Plus, dividends trigger a tax liability for many shareholders, whereas buybacks simply drive an organic increase in Berkshire's stock price, which doesn't have to be realized until the investor decides to sell.
Berkshire repurchased its own stock in almost every single quarter between the third quarter of 2018 and the second quarter of 2024, spending a staggering total of $77.8 billion. That is more than double the $38 billion the conglomerate invested in Apple, which is the largest holding in its portfolio:
BRK.A Stock Buybacks (Quarterly) data by YCharts
However, as you can see in the chart above, Berkshire didn't buy back any stock in the third or fourth quarter of 2024. Valuation might be one of the reasons -- the upside in Berkshire stock (even in the face of a broader market correction) has catapulted it to a price-to-sales (P/S) ratio of 2.67, which is a 34% premium to its 10-year average of 1.99:
BRK.A PS Ratio data by YCharts
Buffett can authorize stock buybacks as long as Berkshire's cash, equivalents, and holdings in U.S. Treasury securities remain above $30 billion. Since the company is sitting on a record $334 billion in dry powder right now, I think the recent halt in buybacks will prove to be temporary. After all, it won't be easy for Buffett to find enough suitable opportunities in which to invest all of that cash.
Buffett sold truckloads of other stocks last year
The reason Berkshire is sitting on so much cash right now is because Buffett and his team went on a selling spree during 2024. It turns out they cashed in some of the conglomerate's gains at the perfect time, because the S&P 500 recently entered a correction after declining by more than 10% from its all-time high.
Berkshire's position in Apple was worth over $170 billion going into 2024, which represented around 50% of its entire portfolio (by value), but it sold more than half of its shares throughout the year. Apple remains Berkshire's largest position, but it accounts for just 23% of its portfolio now.
That wasn't the only stock Berkshire sold in 2024. It trimmed its positions in T-Mobile, Chevron, Bank of America, and Louisiana Pacific, to name just a few. It also sold its entire holdings in Snowflake, Paramount Holdings, Floor and Decor Holdings, HP, and Ulta Beauty.
It even dumped its only two index funds, the Vanguard S&P 500 ETF and the SPDR S&P 500 ETF Trust.
But that doesn't mean investors should panic. History proves the stock market always climbs to new highs given enough time, which means investors who bought the dip in every correction have done significantly better than those who exited the market.
Plus, Buffett actually bought a few stocks in the final two quarters of 2024 amid all of his selling. He opened new positions in Constellation Brands, Pool Corporation, and Domino's Pizza, so he must be feeling somewhat positive about the spending potential of consumers over the long term.
Therefore, now could be a great time for investors to add to their portfolios. It might even be a good idea to start with Berkshire Hathaway stock itself, given its incredible performance since 1965.
