Berkshire Hathaway in a way is a mutual fund managed by Warren Buffet. He also own the biggest share of it. The company own Coca Cola, Geico Insurance, Dairy Queen, Heinz and many others company.
How much is the price of a share of Berkshire Hathaway? USD 272,005 per share or RM 1,142,421 per share.
Let’s say that you (or your parents or grandparents) had the foresight to invest $10,000 in Berkshire Hathaway when Warren Buffett first took over. Here is how much you’d have now, and what to expect from Berkshire over the next 53 years.
Share price was just $12.37 at the time Buffett took over the company back then. And it also means that a $10,000 investment would have bought 808 shares of the company, which would be worth more than $219 million as I of today. In RM it would be worth close to a billion ringgit.
That’s the power of high investment returns when they’re sustained over long time periods.
Since Warren Buffet took over, Berkshire Hathaway never distribute a cent of dividend to shareholders. If the company can generate return at 20% annualised compounded return, why should he give out dividend? Even if there was a dividend declared, it was better to reinvest the dividend back to the company. Unless you could beat Warren Buffet track record.
However, in utilities and telcos company, after opex and capex provision from the net profit, they should give out dividend. Can you figure out why it is so?
Unit Trust Dividend and Price
I wrote about 5 myths of unit trust invesment before. One of it, ‘a low entry price for a unit trust means a far better chance of enjoying capital gain‘. This is myth.
You should know that unit trust dividend is different with share dividend. The right term for unit trust is distribution. When I say unit trust dividend, it refer to distribution.
Entry price make no difference, whatsoever to long term gain. Warren Buffet can easily split the Berkshire Hathaway share to reduce the price per share. But that doesn’t give any influence to underlying business he own. Well, split the share price does not increase CEO IQ overnight.
In unit trust, it’s neither the the price (or should I say ‘pricing’) that will influence your investment return, nor the dividend payout.
It’s how good fund manager construct investment portfolio and the underlying business performance that the fund manager decide to invest on behalf unit holder.
Public Islamic Equity Fund (PIEF) was launched on 28 May 2003 at a price of RM 0.25 per unit. Since then it recorded a growth of 9.41% compounded annual rate of return.
At 9.41% annual compounded return, PIEF’s price should be RM 0.96 per unit. But if you check PIEF’s price today is only RM 0.3435 per unit.
That’s because, as Public Mutual declared dividend for the fund, the price per unit of PIEF will drop by the same amount.
So, if you add up all the dividend from 2008 until 2017, total dividend payout is RM 0.695 per unit. Add up with initial price of RM 0.25 per unit, you will get RM 0.945. Try and figure out yourself.
I don’t have the record for 2003 to 2007 dividend history to make up the price to RM 0.96 per unit.
The mechanism of unit trust distribution have nothing to do with underlying business performance that the fund invested.
If you split a bad apple into half, you still have one bad apple. So, please invest in good apple and not invest in splitting the apple.
Elias Abllah, Personal Finance.