Benzinga - Legendary investor Warren Buffett is known for being the CEO of Berkshire Hathaway Inc (NYSE: BRK-A)(NYSE: BRK-B). The holding company led by Buffett has acquired many companies over the years and invested in some of the largest publicly traded companies.
Here’s a look at how the stock has performed since one of its most famous acquisitions.
What Happened: Since 1970, Berkshire Hathaway has acquired more than 50 companies and increased the size of its portfolio. Companies owned by Berkshire Hathaway include GEICO, Helzberg Diamonds, Fruit of the Loom, Duracell, Benjamin Moore Paint and Dairy Queen.
The company counts the insurance sector as one of its major business segments, which has been helped by several acquisitions over the years.
In 1967, Berkshire Hathaway invested $8.4 million in National Indemnity Company and National Fire and Marine Insurance Company.
Buffett was interested in the insurance sector at a young age thanks to his mentor Benjamin Graham being on the board of insurance company GEICO.
“In 1951, when I was 20, I Invested well over half of my net worth in GEICO,” Buffett once said.
The legendary investor would accumulate a stake in GEICO over the years with the announcement on Aug. 25, 1995, that Berkshire Hathaway would acquire the remaining 49% of the company it didn’t own.
The deal called for Berkshire Hathaway to pay $2.3 billion in cash to acquire the additional 49% of GEICO, which was the sixth largest car insurer at the time. The deal was completed in January 1996.
GEICO was seen as a major disruptor to the automotive insurance sector with a model that saw policies sold direct to consumers through mail, telephone and television, instead of using sales agents, who receive commissions.
GEICO has expanded its market share and is the second largest auto insurer in the U.S. with a market share of around 14%, trailing only State Farm.
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Investing $1,000 in Berkshire Hathaway: Investors who believed in the insurance sector or saw Buffett’s latest acquisition as a smart move could have invested in Berkshire Hathaway to capitalize on the new deal.
A $1,000 investment in Berkshire Hathaway the next trading morning after the acquisition announcement could have purchased 0.0392 shares of the Class A stock.
The 0.0392 shares of BRK-B would be worth $18,972.80 today, based on a price of $484,000 for the stock at the time of writing.
This represents a hypothetical return of 1,797.28% since the acquisition of GEICO was announced.
The same $1,000 investment in the SPDR S&P 500 ETF Trust (NYSE: SPY), which tracks the S&P 500 would be worth $7,221.25 from the date of the GEICO announcement to today.
This means shares of Berkshire Hathaway have outperformed the S&P 500 by a significant margin, showing that it has paid to bet on the Oracle of Omaha, Warren Buffett.
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