That pocket change just keeps piling up.
As a demonstration to show how small amounts of money can turn into larger amounts of money (i.e. the power of compounding), in April of 2014 I created a portfolio that consists exclusively of Berkshire Hathaway stock. The rules are:
- Only investments in Berkshire Hathaway stock can be made
- The capital must come from my “lunch money” alloted in the OMM family budget
- Loyal3 or a similar fee-free platform should be used, since brokerage fees on small deposits would significantly eat up capital
Now, two years later, the results are starting to become meaningful. The portfolio amount is now up to over $560.
The vast majority of this is contributions, not investment gains, just to be clear. So far I’ve invested $531 into Berkshire stock. So, that’s a roughly 2.7% annual rate of return. Nothing to write home about, but also nothing to really take note of either, with a time horizon of only 24 months. I imagine over a 5-10 year period the amount of gains in the account will start to be significant, if history is any guide.
In related news, I got my first physical copy of the Berkshire Hathaway annual report mailed to me this year. I haven’t yet gone through it in its entirety, but the first dozen pages or so were interesting; essentially a good reminder of the businesses Berkshire Hathaway owns and how they make money. You know, typical Buffet stuff.
Although there’s no way I would have been able to make it to the annual shareholder’s meeting in Omaha this past weekend, it was kind of nice to get the shareholder credentials in the mail with the annual report and see them. Hopefully one day I’ll get to go before Buffet or Munger passes away. Then again, people have been saying they’ve been on their last legs for years now, but they both seem to be in good health. We’ll have to see though – in the meantime I’ll just keep learning about the businesses that Berkshire owns and slowly collecting more ownership with my pocket money.
It’s been awhile since I provided an update on my little academic experiment. Every paycheck, I take a little bit of pocket money and use Loyal3 to invest in Berkshire Hathaway stock. It isn’t much ($20/month at the moment) but I’m using it as a principle to demonstrate how anyone can invest a little bit of money and what it grow over time.
Here’s how the growth of the account has fared over the past 26 months:
The curve showing Shares Owned has been relatively steady, indicating that the market price of Berkshire stock hasn’t changed too much over time (since I always invest the same amount). My family now owns over two full shares of Berkshire. Pretty cool eh? It seems like not that long ago we didn’t own any. I could have easily used that $20/month and bought lunch at work with it and not thought anything of it. But now, I get to look at an account balance that’s steadily growing, and its one that reminds me that I’m a small, teeny, tiny partner in the great enterprise that Warren Buffet and Charlie Munger have built.
Speaking of Berkshire, there has been much talk recently about the Kraft-Heinz acquisition. The size of the deal leads many to believe (myself included) that eventually the large food group will become a fully owned subsidiary of Berkshire. Let’s face it, the empire Buffet and Munger have built has become so large at this point that there aren’t that many places to go continue growing at a fast clip. It’s the problem that you and I will probably never face – having so much money to invest that there are not enough opportunities to put it to work fast enough and intelligently enough.
Alas, we’ll see what happens. I’d certainly like for Berkshire to pay a dividend once (if) all the growth opportunities dry up at some point. If the Federal government didn’t double tax dividends (once at the corporate level and once at the individual investor level), more companies might be inclined to return cash to shareholders this way. But I digress….for now, I’ll just keep slowly building and ownership position.
It’s been awhile since I gave you all an update on the Berkshire Hathaway Investment Plan (BHIP). It’s a small academic project I started almost a year ago meant to demonstrate how an everyday person with some spare cash can slowly build up a meaningful position in a great business.
Basically, I put $20 or so per month into Berkshire Hathaway’s stock. Even though that’s nothing close to a lot of money, it’s meant to demonstrate measurable gains in wealth over long periods of time.
It’s been almost a year now and I’ve been consistently setting aside a little bit of money every single paycheck. I didn’t pay any commissions by using the fee free broker Loyal3. In the past I would have never been able to invest such a small amount of money at a time without it getting eaten up almost entirely by commissions costs.
The position is slowly growing. Coupling my regular contributions with the rise in BRK’s stock price, the total account is valued at over $240. Wow, all that from just some pocket change!
I’m looking forward to seeing the position grow much bigger over time. I haven’t finished reading Warren Buffet’s latest letter to shareholders, but what I’ve read so far has been inspiring. Buffet and Munger have done all of us shareholders a favor – creating a huge cash machine that basically prints money. I have confidence that even when Buffet and Munger pass on, the systems they have put in place will continue to produce prodigious amounts of wealth for the company’s owners.
Total Contributions: $231.00
Total Portfolio Value: $247.55