Much analysis has been lavished on understanding Berkshire Hathaway (BRK) and its future. As an aid, Warren Buffett outlines the historical growth rates in per share investments and in per share earnings in the BRK 2005 Annual Report.
For the last forty years, the growth rate in per share investments has been 28.0% compared to the much lower growth rate of 17.2% in per share earnings. However, the past ten years has had a serious reversal as per share investments have grown at 13.0% while per share earnings have grown at 30.2%. Despite Mr. Buffett's desire to move both measures of value at the higher rates, the likelihood is that future returns will resemble the lower rates.
The dramatic increase in earnings has accompanied the change from a publicly traded portfolio of stocks to a privately held portfolio of businesses. In the publicly traded portfolio, earnings of the stocks did not show up in the earnings per share calculation. For example, 1995's per share earnings figure is $175 while the per share investment is $21,817, giving an incredibly low earnings yield of 0.8%! Currently, 2005's per share earnings figure is $2,441 while the per share investment is $74,129, giving a much higher earnings yield of 3.3%.
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For 2006, the long term rates of investments per share and earnings per share continued to converge, now at 27.5% and 17.9% respectively. In addition, the "earnings yield" has risen to 4.5%.
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