How to Track Stock Gifted to Grandchildren

Learning how to track stock gifted to grandchildren is not something most families think about until years later, when a few old shares turn out to be worth far more than anyone expected. That is exactly what happened in a story a retired Merrill Lynch advisor shared in Barron’s, and it is worth reading for anyone who has ever bought stock as a gift and mostly forgotten about it since.

A stock nobody had heard of

In 1983, a grandmother walked into a Merrill Lynch office wanting to buy a Christmas gift for her three grandchildren. She wanted one share each of a company called Berkshire Hathaway. At the time it was not the household name it is today. The broker looked up the price, saw it trading around $2,000 a share, and thought it seemed expensive for a single share of stock most people had never heard of.

The grandmother saw it differently. She had grown up in Omaha and knew of the company’s chief executive Warren Buffett. She believed it was a good buy, bought the three shares, and the certificates went into the grandchildren’s stockings that Christmas.

What decades of compounding actually looks like

Berkshire Hathaway went on to perform far better than almost anyone could have predicted in 1983, and decades of compounding turned three modest shares into a position worth an estimated $2.3 million today. If the grandchildren did not sell the shares, they ended up wealthy, not because anyone made a brilliant trade, but because a good stock was bought and then simply left alone.

Why this kind of holding is so easy to lose track of

Stock given as a gift tends to disappear from view in a way that actively managed stock does not. There is rarely a clean record of the price the stock was purchased at, when dividends were reinvested, or how the original purchase turned into a gain or loss decades later. That gap between owning a stock and actually understanding it is where a good stock portfolio tracking tool like EquityStat matters most.

Seeing performance over the full holding period

EquityStat’s performance graphs let an investor see exactly how a stock has performed over time, not just what it is worth today. For a position held across decades, this view shows how the stock performed over the long-term.

That long view matters even more next to a benchmark. EquityStat lets investors compare their stock’s performance directly against market indexes like the Dow, the Nasdaq, and the S&P 500, so a big return can be measured against what the broader market did over the same period rather than judged in isolation.

How to track dividend reinvestment on a long held stock

A three share gift rarely stays three shares. Reinvested dividends quietly add to a position year after year, and most people holding a gifted stock have no real sense of how much of their eventual gain came from price appreciation versus decades of compounding dividends. Seeing that breakdown, both for the current quarter and going back over the full holding period, is the difference between a vague sense that a stock did well and a concrete understanding of why.

EquityStat’s Portfolio Analysis page was built for this kind of long horizon question. It shows dividends received over time, dividends year to date, dividends for the current quarter, and expected dividends ahead, at both the account level and portfolio level, so a gifted or long held position does not stay a mystery for forty years.

Tracking the dividends along the way

If Berkshire Hathaway had paid a dividend over those decades, EquityStat would have tracked it the same way it tracks dividends for any other stock, recording each payment and showing dividends received over time. That record matters for understanding income from a long held position, not just its price.

Why cost basis matters more than most investors realize

EquityStat also calculates cost basis automatically, and this is where reinvested dividends usually complicate things. Every time a dividend gets reinvested, it changes the cost basis of the position, and keeping that running total by hand over a multi decade holding period is not easy to do accurately. EquityStat handles the cost basis calculation as it happens.

Cost basis is not just a tax detail. It is required to figure out gain or loss when a stock is eventually sold, but it also plays a direct role in calculating the actual return on the investment. Without an accurate cost basis, there is no way to know how well a stock really performed, gift or otherwise.

The real takeaway

The grandmother in this story was not trying to predict the future. She trusted a company she understood and hopefully let the investment sit for decades. Most investors are not going to find the next Berkshire Hathaway, but any stock held long enough deserves the same basic discipline, and the same clear record of its cost basis, dividends, and performance against the market. That record is what eventually turns a forgotten gift into a number a family can actually use.

Warren Buffett Investing Philosophy – What His Birthday Reminds Us About Building a Portfolio

Warren Buffett’s investing philosophy has shaped how millions of everyday investors think about the stock market, and his birthday, August 30th, is a good excuse to revisit why his approach has held up for so long. Buffett was born in Omaha in 1930, and in the decades since he has built Berkshire Hathaway into one of the wealthiest companies in thew world, all while sticking to a small set of principles that have barely changed.

Think of a Stock Like a Business

One of Buffett’s most repeated ideas is that when you buy a stock, you are buying a piece of a real business, not a symbol that moves up and down on a screen. He has said many times that he only buys companies he understands well enough to explain in simple terms. That discipline is easy to say and hard to practice, especially when a portfolio is scattered across a brokerage, a 401k account, and a handful of Excel spreadsheets. A stock portfolio tracker like EquityStat brings your stocks, mutual funds, and ETFs into one place, so you can actually see the businesses you own instead of a confusing pile of account statements.

Buy and Hold Philosophy

Buffett has held some of his core investments for decades, and he is famous for saying that his favorite holding period is forever. That kind of patience only works if you can see how an investment has actually performed over the long stretch, not just today’s price movement. EquityStat tracks your gain, your annualized return, and your year-to-date performance for every holding, so you can judge an investment the way Buffett does, over years, not days.

Know Your Cost Basis

Buffett pays close attention to what he actually paid for a business, because that number is what determines whether a sale is a smart decision or a costly mistake at tax time. Cost basis is one of those details that is easy to lose track of, especially after years of buys, sells, dividends, and stock splits. EquityStat calculates cost basis automatically from your full transaction history, so when it is time to sell, you already know exactly where you stand.

Reinvest Dividends and Let Compounding Work

A large part of Berkshire Hathaway’s growth has come from patient compounding, not frequent trades. For everyday investors, dividends play a similar role. Buffett has praised the power of reinvested earnings for decades. Tracking that growth matters just as much for a personal portfolio as it does for a company the size of Berkshire. EquityStat logs dividend income at the individual holding level and rolls it up across your entire account, so you can watch that compounding happen in your own investments.

Measure Yourself Against the Market

Buffett believes if your portfolio is not beating a simple index fund over time, you might be better off just owning an index fund. He has recommended a low-cost S&P 500 fund for most investors more than once. Whether you are trying to beat the market or simply want to know if you are keeping pace with it, EquityStat lets you graph your portfolio directly against the S&P 500, the Dow Jones, and the Nasdaq, so you get a real answer instead of a guess.

Try Out Our Berkshire Hathaway Calculator

If you have ever wondered what a long term, patient approach like Buffett’s actually looks like in dollars, our Berkshire Hathaway calculator lets you plug in a purchase date and see what that investment would be worth today. It is a fun way to see compounding in action before applying the same patient thinking to your own portfolio.

Happy Birthday to one of the world’s best investors. To be a great investor like Warren Buffett, you need a great tool to track your investments, not just good instincts. Buying what you understand, holding with patience, watching your cost basis, and measuring yourself against the market are habits any investor can build, and EquityStat is built to make those habits easier to keep.

If you bought Berkshire stock how rich would you be?

If you bought Berkshire Hathaway (BRK.A) stock instead of paying for college, how rich would you be?  Instead of having that fabulous wedding, what if you bought Berkshire?  How about if you owned a couple of shares of Berkshire instead of your dream home, how rich would you be?

Use our Berkshire Wealth Calculator to find out.  Just click this link

How rich would you be if you invested in Berkshire Hathaway?

and then enter the year you went to college, had that fabulous wedding or bought your dream home.  Next, enter the amount you paid.  Click Go and you will see how rich you could be.

 

 

 

 

Does Buffett think Berkshire stock is underpriced?

If you read Berkshire’s annual letter, you can gain a lot of insight as to what Buffett thinks of Berkshire. So based on the 2014 annual letter, does Buffett think Berkshire’s stock is undervalued, overvalued or just right?

First, Buffett has always said, over time Berkshire’s stock price will reflect the intrinsic value of the business. Calculating Berkshire’s intrinsic value is not a precise exercise but a lot of analysts do it, including Buffett and Munger.

In his 2014 annual letter, Buffett points out several times that the value of an asset on the books is a lot less than the true or intrinsic value of the asset. For example, when discussing Berkshire’s insurance float he says

Charlie and I believe the true economic value of our insurance goodwill – what we would happily pay for float of similar quality were we to purchase an insurance operation possessing it – to be far in excess of its historic carrying value. Under present accounting rules (with which we agree) this excess value will never be entered on our books. But I can assure you that it’s real. That’s one reason – a huge reason – why we believe Berkshire’s intrinsic business value substantially exceeds its book value.

When discussing the businesses that make up Berkshire, Buffett says

Furthermore, the intrinsic value of these businesses, in aggregate, exceeds their carrying value by a good margin, and that premium is likely to widen. Even so, the difference between intrinsic value and carrying value in both the insurance and regulated-industry segments is far greater. It is there that the truly big winners reside.

And finally, Buffett points out that the peculiarities of Marmon’s rail car business which causes Marmon’s book value to be undervalued.

One further fact about our rail operation is important for you to know: Unlike many other lessors, we manufacture our own tank cars, about 6,000 of them in a good year. We do not book any profit when we transfer cars from our manufacturing division to our leasing division. Our fleet is consequently placed on our books at a “bargain” price. The difference between that figure and a “retail” price is only slowly reflected in our earnings
through smaller annual depreciation charges that we enjoy over the 30-year life of the car. Because of that fact as well as others, Marmon’s rail fleet is worth considerably more than the $5 billion figure at which it is carried on our books.

Based on these quotes is Buffett hinting that book value is substantially under intrinsic value? And since Buffett believes stock price will eventually be the same as intrinsic value, does Buffett believe Berkshire’s stock price is undervalued?

I think the answer is a yes!

Best Quotes from Berskhire Letter

On Saturday Warren Buffett released his annual letter on Berkshire Hathaway.  If you are an investor it is a must read.  Here are the best quotes from the letter.

On Berkshire’s Investments

… stock repurchases at Coca-Cola, American Express and Wells Fargo raised our percentage ownership of each. Our equity in Coca-Cola grew from 9.1% to 9.2%, our interest in American Express increased from 14.2% to 14.8% and our ownership of Wells Fargo grew from 9.2% to 9.4%. And, if you think tenths of a percent aren’t important, ponder this math: For the four companies in aggregate, each increase of one-tenth of a percent in our ownership raises Berkshire’s portion of their annual earnings by $50 million.

On BNSF Railroad

BNSF, like all railroads, also moves its cargo in an extraordinarily fuel-efficient and environmentally friendly way, carrying a ton of freight about 500 miles on a single gallon of diesel fuel. Trucks taking on the same job guzzle about four times as much fuel.

Elephant Hunting or Tuna Fishing?

In past letters Buffett has said he is elephant hunting for new businesses.  He is now fishing.

With the acquisition of Van Tuyl, Berkshire now owns 9 1⁄2 companies that would be listed on the Fortune500 were they independent (Heinz is the 1⁄2). That leaves 490 1⁄2 fish in the sea. Our lines are out.

Investing Wisdom

… my experience in business helps me as an investor and that my investment
experience has made me a better businessman. Each pursuit teaches lessons that are applicable to the other. And some truths can only be fully learned through experience. (In Fred Schwed’s wonderful book, Where Are the Customers’ Yachts?, a Peter Arno cartoon depicts a puzzled Adam looking at an eager Eve, while a caption says, “There are certain things that cannot be adequately explained to a virgin either by words or pictures.”

For the great majority of investors, however, who can – and should – invest with a multi-decade horizon, quotational declines are unimportant. Their focus should remain fixed on attaining significant gains in purchasing power over their investing lifetime. For them, a diversified equity portfolio, bought over time, will prove far less risky than dollar-based securities.

Funny

The gecko, I should add, has one particularly endearing quality – he works without pay. Unlike a human spokesperson, he never gets a swelled head from his fame nor does he have an agent to constantly remind us how valuable he is. I love the little guy.

When I was a teenager– in my one brief flirtation with honest labor – I tossed about 500,000 papers.

Benjamin Franklin Wisdom

Buffett always has some common sense wisdom in his letters.

It’s better to have a partial interest in the Hope Diamond than to own all of a rhinestone.

In the world of business, bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by, you meet his relatives.

Market forecasters will fill your ear but will never fill your wallet.

We’ve found that if you advertise an interest in buying collies, a lot of people will call hoping to sell you their cocker spaniels.

… never underestimate the man who overestimates himself.

Dividend?

Buffett has always said Berkshire won’t pay a dividend but hints that they might in the future.

Eventually – probably between ten and twenty years from now – Berkshire’s earnings and capital resources will reach a level that will not allow management to intelligently reinvest all of the company’s earnings. At that time our directors will need to determine whether the best method to distribute the excess earnings is through dividends, share repurchases or both.