Berkshire Hathaway stock could drop 99% and still match S&P 500

Berkshire Hathaway shares could lose 99% of their value today and still match the performance of the S&P 500 index over the past six decades, according to data posted by Michael Batnick on X on Sept. 22. The statistic highlights the magnitude of the conglomerate's long-term growth trajectory under Warren Buffett's leadership.

The visual shared by Batnick illustrates that even a near-total collapse in the current share price would not erase the gains accumulated over sixty years. This data point underscores the central role of compounding in Buffett's financial success at Berkshire Hathaway (BRKA +0.45%, BRKB +0.48%).

Compounding functions by generating returns on returns in subsequent years. The mathematics are straightforward: a hypothetical $10,000 investment growing at 15% annually would reach $662,000 after 30 years. Approximately half of that total gain arrives in the final five years of the period, demonstrating how exponential growth accelerates late in the timeline.

Buffett's personal wealth reflects this late-stage acceleration. About 99% of his $151 billion net worth was built after his 65th birthday. His associate, the late Charlie Munger, attributed this phenomenon to a specific discipline. "The first rule of compounding is to never interrupt it unnecessarily," Munger is quoted as saying. He also noted that "the big money is not in the buying or selling, but in the waiting."

Maintaining this uninterrupted growth requires avoiding actions that disrupt the process, particularly selling. Selling triggers tax bills that can erode returns, a cost that benefits long-term business owners who can defer capital gains taxes. The strategy relies on staying invested through market volatility rather than reacting to short-term price movements.

The market environment constantly tests investor patience. Bear markets occur on average every six years, and since 1980, 5% drops have happened almost every year. During these weak periods, the inclination to sell is strong, but the recommended approach is to stay the course and continuously add capital through dollar-cost averaging.

Investing is a field where inaction can serve as a competitive advantage. Investors who produce winning returns are often those who sit still rather than trade frequently. Patience acts as an edge, allowing the compounding mechanism to operate without interference. While individual investors may not possess the stock-picking abilities of Buffett and Munger, they can emulate their philosophy by letting compounding run its course.