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Microsoft vs. Berkshire Hathaway

By JLP | December 15, 2006

We all know that Bill Gates and Warren Buffett are good friends. I thought it would be fun to compare the performance of Microsoft with Berkshire Hathaway to see which company would have done better. To do this comparison, I used the starting date of March 13, 1986, the first day that Microsoft started trading. I used the closing prices for each stock, which was $28 for Microsoft and $3,210 for Berkshire Hathaway. To make this an apples-to-apples comparison, I assumed an investment of $3,210 was made in each company and that all dividends and splits were reinvested over the years.

Which company do you suppose performed better? Take a look at the graphic to find out:

MSFT vs. BRKA

MSFT vs. BRKA Chart

So, had you invested $3,210 in each company on March 13, 1986, you would have $1,121,332 in Microsoft and $107,050 in Berkshire Hathaway.

Over that time period Microsoft grew at a 32.16% annualized rate while Berkshire grew at a 18.18% annualized rate. The ride would have been a lot bumpier with Microsoft. In 2000 you would have had experienced a gut-wrenching 62.84% loss. OUCH! However, even after that loss, you would have still had ten times more money in Microsoft than Berkshire (see THIS TABLE).

Of course it isn’t exactly fair to compare a diversified company like Berkshire Hathaway with a tech company like Microsoft. That doesn’t mean it isn’t fun to do “what if” scenarios.

Topics: Investing | 3 Comments »


3 Responses to “Microsoft vs. Berkshire Hathaway”

  1. Matt Says:
    December 16th, 2006 at 12:32 pm

    Interesting comparison, too bad there aren’t more companies that grow like Microsoft.

  2. JLP Says:
    December 16th, 2006 at 12:49 pm

    Matt,

    Although illustrations like this are fun to do, the problem is that hindsight is 20/20. We can look at point a to point b and think, “Wow, I should have invested in that.” When in reality, no one knew the scope of what Microsoft had to offer. There are companies out there that will offer this kind of return. The hard part is finding them and then having the faith to stick with them through thick and thin.

  3. Lenny Says:
    December 17th, 2006 at 11:50 am

    JLP,

    Interesting, but…

    The chart shows is that if you made an investment on 3/31/86 and held it until 12/8/06 you would have done better with Microsoft. However:

    1. Most people would not have bought in because they thought the stock was fully or overvalued

    2. If they did buy in, they would have sold early because they mad a profit and were told by some financial guru to take their profit

    3. they bought in during the dot com boom because they wanted to participate in it “conservatively” and ended up losing half their money by selling at the bottom

    4. have written off Microsoft today as they have in the past

    Although a different timeframe, a better comparison between the companies would be the first day of trading for Berkshire until today. Although over a longer timeframe, more investors stayed with Berkshire and have more confidence in it today.

    Using a strategy of finding the next Microsoft is a loser’s game. When it’s so easy to be a winner, I wonder why people continue to lose….

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