Warren Buffet's Berkshire Hathaway vs Credit Card Interest Rate

In 1965 Buffet's partnership began aggressively buying Berkshire Hathaway paying $14.86 a share.  If you could go back in time and start buying Berkshire Hathaway stock in the open market, would you do it?  Who wouldn't?  Some people think that it takes a lot to get rich, all you really need is a time machine.
    Today that same share that cost $14.86 in 1965 is now worth $194,720.00 a share, plus you also got a 10 cent dividend in 1967.
    An opportunity like that is a once in a lifetime type of thing.  The only hitch would be that you would need to keep it invested until 2015 and you would need to borrow it with secured credit at 19.99% compounded monthly.
    Believe it or not, even though you are investing in the same company that essentially created the world's richest man, you will actually come out worse than broke.


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Credit Card Nerd Math

A 19.99% interest rate that is compounded monthly will compound at a rate of 21.9% annually.  (19.99%/12)12 = 21.9%.
    For fifty years the value of Berkshire Hathaway has gone from $14.86 to $194,720.00 a share.  In fifty years your debt would have grown from $14.86 to $296,622.50.   The math works like this: $14.86 x (1.21950) = $296,622.50.
    Warren Buffet starting buying Berkshire Hathaway stock aggressively in 1965 driving up the share price, but he started in 1962 at only $7.60 a share.  Even at that reduced share price in 1962, you will still come out ahead paying off the 19.99% compounded monthly credit line.  The numbers work like this.  For fifty-three years the value of Berkshire Hathaway has gone from $7.60 to $194,720.00 a share.  In fifty-three years your debt would have grew from $7.60 to $274,795.74.   The math works like this: $7.60 x (1.21953) = $274,795.74.
    With staggering numbers like this it is no wonder why American Express and Wells Fargo are more than 25% of the stock holding for Berkshire Hathaway.  Below we have a chart featuring the return on investing in Berkshire Hathaway at the lowest price in December (with the exception of 1962 and 1965) of each year and the debt for a credit line that has an interest rate of 19.99% compounded monthly.



$1000 in Berkshire Stock vs $1000 19.99% Line of Credit

Year

Stock

Debt

1962

$25,621,052

$36,157,333

1965

$13,103,634

$19,961,137

1980

$463,619

$1,023,599

1981

$350,847

$839,704

1982

$282,203

$688,846

1983

$149,211

$565,091

1984

$153,929

$463,570

1985

$78,834

$380,287

1986

$71,720

$311,966

1987

$70,807

$255,920

1988

$41,651

$209,942

1989

$23,602

$172,225

1990

$31,155

$141,284

1991

$23,460

$115,901

1992

$18,589

$95,079

1993

$12,020

$77,998

1994

$9,960

$63,985

1995

$6,221

$52,490

1996

$6,047

$43,060

1997

$4,346

$35,324

1998

$3,334

$29,193

1999

$3,745

$23,948

2008

$2,164

$4,000


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A Wake Up Call

Hopefully this will be a wake up call to anybody that thinks that they will be okay keeping a substantial balance on their credit card.  Even one of the best investors, if not the greatest investor of our time would not be ahead with debt compounding at 19.99%, what chance do you have getting ahead while carrying a credit card balance?
    Don't waste your time blaming the credit card companies either, it won't get you anywhere.  The only way to get out of the credit card debt trap is to aggressively pay down your balance.  It is hard paying down debt at 19.99%, so you might want to check out if you can get a credit line at your bank.


Sources:
Historical data and current stock price for Berkshire Hathaway
Berkshire Hathaway early years with Warren Buffet