In the fast-paced world of high-tech valuations and digital-first businesses, it’s not every day that a company rooted in the old economy crosses the trillion-dollar threshold. Yet, on Wednesday, Warren Buffett’s Berkshire Hathaway did just that, joining the exclusive ranks of U.S. companies valued at $1 trillion.
This achievement is particularly notable given the conglomerate’s focus on businesses that many might consider “traditional”—from railroads to insurance to retail.
Berkshire’s journey to this milestone is a story of steady growth, strategic foresight, and, above all, a deep-seated belief in the fundamentals of value investing. As of Wednesday, shares of Berkshire Hathaway rose by 0.8% to $696,502.02, according to FactSet, officially pushing the company’s market capitalization past the $1 trillion mark. This feat comes on the heels of a remarkable 28% surge in Berkshire’s stock price in 2024, significantly outpacing the broader market’s gains.
Tekedia Mini-MBA edition 15 (Sept 9 – Dec 7, 2024) has started registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
At 94 years old, Warren Buffett, the “Oracle of Omaha,” stands as the architect of this empire—a company that, despite being steeped in traditional industries, has shown an uncanny ability to thrive in today’s complex and often volatile market landscape.
Old Economy, New Heights
Berkshire Hathaway’s rise to a trillion-dollar valuation is particularly striking given its portfolio’s composition. Unlike its peers in the trillion-dollar club—Apple, Nvidia, Microsoft, Alphabet, Amazon, and Meta—Berkshire is not driven by cutting-edge technology. Instead, it is powered by businesses that have been around for decades, such as BNSF Railway, Geico Insurance, and Dairy Queen. It’s a conglomerate built on a foundation of brick-and-mortar enterprises that many analysts might dismiss as relics in an era dominated by tech giants.
Yet, this very composition is what makes Berkshire’s achievement so significant. Cathy Seifert, a Berkshire analyst at CFRA Research, summed it up: “This milestone is a testament to the firm’s financial strength and franchise value.”
The company’s ability to command such a high valuation while sticking to its roots speaks volumes about the resilience of traditional business models, even in the face of modern market trends.
The Buffett Legacy
Warren Buffett’s journey with Berkshire began in the 1960s when he took control of what was then a struggling textile business. Over the decades, he transformed it into a sprawling conglomerate that now includes insurance, railroads, retail, manufacturing, and energy. His investment philosophy—rooted in patience, discipline, and a keen eye for value—has not only built Berkshire into a powerhouse but has also inspired generations of investors.
However, even as Berkshire basks in its trillion-dollar glory, Buffett has been making moves that suggest a more cautious outlook on the market. Recently, Berkshire has been in a selling mode, offloading a significant amount of stock, including half of its Apple stake, while amassing a record $277 billion in cash reserves by the end of June. For some, this signals that Buffett may be bracing for potential economic turbulence ahead.
This cautious stance extends to Berkshire’s recent sale of more than $5 billion worth of Bank of America shares in mid-July. This move is particularly noteworthy given that Buffett had been a major supporter of the bank in the aftermath of the 2008 financial crisis, purchasing preferred stock and warrants to help stabilize the embattled lender.
While Buffett is famous for advising investors against trying to time the market, his recent actions have led to speculation that he may have seen storm clouds on the horizon. Berkshire’s substantial investment in short-term Treasury bills, valued at $234.6 billion by the end of the second quarter, has now surpassed even the holdings of the U.S. Federal Reserve. This strategic conservatism suggests that Buffett is positioning Berkshire to weather any potential economic downturns, ensuring that the company remains a fortress of financial stability.
For investors, this approach has made Berkshire an increasingly attractive option in uncertain times. UBS analyst Brian Meredith recently raised his 12-month price target for Berkshire’s Class A shares to $759,000, citing strong second-quarter earnings and higher investment income. He believes that Berkshire’s diverse portfolio and substantial cash reserves make it a safe haven in a volatile market, with the potential for continued growth beyond the $1 trillion mark.
The Future of Berkshire As Buffet Passes the Torch
As Berkshire moves forward, the focus is also on the future leadership of the company. Greg Abel, currently vice chairman of Berkshire’s non-insurance operations, has been named Buffett’s successor. At this year’s annual meeting, Buffett assured shareholders that Abel, 62, will take the reins when he steps down. Abel will have the final say on investment decisions, a responsibility that has been crucial to Berkshire’s success.
But the road ahead is not without challenges. The high valuation of Berkshire’s stock, particularly its Class A shares, which now trade at a price 68% higher than the median home price in the U.S., has made it less accessible to smaller investors. Buffett has always resisted splitting the stock, believing that the high share price attracts long-term, quality-focused investors. However, in 1996, Berkshire did issue Class B shares, priced at one-thirtieth of a Class A share, to cater to those who wanted a stake in the company without the hefty price tag.
However, as Berkshire Hathaway celebrates its entry into the trillion-dollar club, the company also faces a pivotal moment in its history. The transition from Buffett to Abel will mark the end of an era, but the principles that have guided Berkshire’s success—prudent management, strategic foresight, and a commitment to long-term value—are expected to endure.
In an age where technology companies dominate the market, Berkshire Hathaway’s rise is seen as a powerful reminder that there is still immense value in traditional business models. The journey to $1 trillion has been a long one, but for Berkshire Hathaway, it’s just another milestone in a legacy defined by enduring success and unwavering commitment to its core principles.
As Buffett prepares to pass the torch, the company he built remains a testament to the power of long-term vision in a world that often favors short-term gain.