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:
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.