I am sure you know that Bill Gates owns Berkshire Hathaway stocks in higher percentages. Berkshire Hathaway represents almost 50% of the Bill and Melinda Gates Foundation stock portfolio.
To learn more about Bill Gates’s stock portfolio, check out our article, “What Companies Does Bill Gates Own as of 2022?“
Anyways, if you want to understand why Bill Gates owns Berkshire Hathaway stocks more than any other, then this article is for you. So, let’s study the reasons behind this business Mogul’s love for Berkshire Hathaway stocks in detail.
Why Bill Gates Owns Berkshire Hathaway Stocks — The Breakdown
Everybody knows Bill and Buffet’s friendship — it is a tale as old as time. In case you have missed then let me break it down for you.
The friendship began 30 years ago in the 1990s when Bill Gates was the richest person, and Warren Buffet was right behind him. Warren Buffet, the CEO and Chairman of Berkshire Hathaway became this powerhouse business magnate by acquiring and buying some undervalued stocks and their companies.
His business practices inspired many entrepreneurs, including Bill Gates, who has expressed how much he learned from this friendship.
If you see their interviews and videos together, they are filled with some endearing moments of them praising each other or sharing nostalgic memories with each other. On many occasions, Gates shared how much he valued his friendship with Buffet.
I have found this sweet video that Bill created on Buffet’s 90th Birthday. Check it out!
This friendship, of course, is not the reason for Bill Gates’s decision to own Berkshire Hathaway shares. So, why does Bill Gates own Berkshire Hathaway shares more than even his own Microsoft? Let’s try to make sense of it.
Buffet’s Annual Donations
Besides good advice and learning, this friendship earned another thing — a life-long commitment by Warren Buffet to donate most of what he has to Bill Gates’s philanthropy work. It’s said while Buffet inspired Gates in his professional journey, Gates inspired Buffet with his philanthropy.
In 2006, Buffet pledged to give 99% of his wealth to five charities, and Gates Foundation received more contributions than others over the years.
We know Berkshire Hathaway shares make up most of Buffet’s wealth — he currently owns 238,624 Class A shares worth $100 billion. So, since 2006, Gates trust has been receiving Berkshire Class B shares annually.
Since 2006, Buffet has given more than $33 billion in Class B shares of Berkshire Hathaway to Gates’s trust. And Bill Gates decided to hold most of it in his portfolio graciously.
So, this is one reason why Bill Gates owns Berkshire Hathaway shares. Now, let’s move to some other probable reasons.
Berkshire Hathaway Has a Diverse Portfolio
You must have heard that never put all your eggs in one basket; the same is true when it comes to investment. Diversification reduces risk! So, one of the reasons why Bill Gates owns Berkshire Hathaway stocks in such a high percentage is that it makes his portfolio more diverse.
There are 53 companies in Berkshire’s stock portfolio worth more than $300 billion. If you look into the stock portfolio of Berkshire, the company has big companies like Apple in its portfolio.
Berkshire Hathaway stock brings much-needed diversity into Gates’s portfolio that does not look very diverse at first glance. Berkshire Hathaway brings a tinge of variety to his portfolio. The company portfolio is a direct reflection of Buffet’s love for long-term investment.
Berkshire Hathaway has investments in various sectors — information technology, energy, insurance, financial services, courier, consumer staples, telecommunication, pharmaceutical supplies, automobiles, etc.
Giant Companies Constitute Large Part of Berkshire’s Stock Portfolio
Warren Buffet is the seasoned investor who has led Berkshire Hathaway from its humble beginning to such a mega success.
Over the years, Buffet has managed the stock portfolio of Berkshire meticulously. Big corporations like Apple constitute top positions in Berkshire’s portfolio.
Apple Inc is the biggest holding company of Berkshire Hathaway — constituting 38% of the portfolio. Berkshire Hathaway currently owns Apple shares valued at $125.39 billion. Bank of America, Chevron Corp, Coca-Cola Co, American Express, Kraft Heinz, and others are other top holdings of Berkshire Hathaway.
Berkshire Has Produced Staggering Returns
Berkshire Hathaway has produced steady returns over the years. For the past 57 years (1965-2021), the average annual return of S&P 500 companies has been 10.7% annually. On the other hand, Berkshire Hathaway stock has appreciated at an annual compounded rate of 20.1%.
Let’s take a scenario where you invested $10,000 in 1965 in Berkshire Hathaway and some S&P 500 company.
If you compare the returns of both your investments in 2021, you would be shocked how much your investment in Berkshire yielded you only because of the power of compounding.
The returns for Berkshire Hathaway over 57 years would be huge due to compounding. So, return for Berkshire shareholder after 35 years is 3,641,613% compared to 30,209% return in S&P 500. So, after 57 years, your $10,000 investment in Berkshire Hathaway would value at $364.17 million. On contrary, if you invested in S & P 500, your investment would be worth $3.03 million in 2021.
Some Other Distinctions of Berkshire
If you look at some other distinctions of Berkshire Hathaway, the ingenuity of Buffet will inspire you. The business prodigy has never split his shares and never distributed dividends. Buffet loves to invest in companies that give dividends but never (only once) gave his investors any dividend. Buffet believes in long-term buy-and-hold investment and fosters such investment in his company.
Buffer believes giving dividend is not a very good use of money. The money not distributed is reinvested in the business, which can prove more lucrative for shareholders in the long run than the dividend, especially for their total returns. Nobody could argue with him because everybody knows Buffet can manage their money better than them.
This and the decision to never go through a stock split have helped the company to reach such heights of success. Berkshire Hathaway has the world’s most expensive share. Its Class A share trades at more than $400,000.
Final Words
Here, we tried to answer the question: “Why does Bill Gates own Berkshire Hathaway and in such an overwhelming percentage?” There could be many reasons. One thing is for sure, his trust gets an annual donation of Class B shares of Berkshire Hathaway, and will continue to do so. Berkshire Hathaway stock brings much-needed diversity into Gates’s portfolio and offers higher returns than any S&P 500 company.
