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Buffett’s Berkshire Hathaway hits $1 trillion market value, first U.S. company outside of tech to do so

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Warren Buffett tours the grounds at the Berkshire Hathaway Annual Shareholders Meeting in Omaha Nebraska.

David A. Grogan | CNBC

Warren Buffett’s Berkshire Hathaway reached a $1 trillion market capitalization on Wednesday, the first non-technology company in the U.S. to score the coveted milestone.

Shares of the Omaha-based conglomerate have rallied more than 28% in 2024, far above the S&P 500’s 18% gain. The $1 trillion threshold was crossed just two days before the ‘Oracle of Omaha’ turns 94 years old.

The shares were up 1.2% to hit a high of $699,440.93 on Wednesday, allowing it to top the $1 trillion mark, per FactSet.

Unlike the six other companies in the trillion dollar club (Apple, Nvidia, Microsoft, Alphabet, Amazon, Meta), Berkshire is known for its old-economy focus as the owner of BNSF RailwayGeico Insurance and Dairy Queen. (Although its sizable Apple position has helped drive recent gains.)

Buffett took control of Berkshire, a struggling textile business, in the 1960s and transformed the company into a sprawling empire that encompasses insurance, railroad, retail and energy with an unmatched balance sheet and cash fortress.

Buffett has been in a defensive mode as of late, dumping a massive amount of stock, including half of his Apple stake, while raising Berkshire’s cash pile to a record $277 billion at the end of June.

While Buffett famously never times the market and advises others to not try to either, these recent moves served as a wake-up call to some of his followers on Wall Street, who believe he saw some things he did not like about the economy and market valuation.

Berkshire invests the majority of its cash in short-term Treasury bills, and its holding in such securities — valued at $234.6 billion at the end of the second quarter — has exceeded the amount the U.S. Federal Reserve owns.

So it’s hard to judge why investors are rewarding Berkshire with the $1 trillion crown today, whether it’s a bet on the American economy and Buffett’s sprawling set of businesses set to benefit if it keeps chugging along or whether they see Berkshire as a cash fortress that will generate steady income in the face of an uncertain macro environment.

The conglomerate also started a selling spree of Bank of America shares in mid-July, dumping more than $5 billion worth of the bank stock. Buffett bought BofA’s preferred stock and warrants in 2011 in the aftermath of the financial crisis, shoring up confidence in the embattled lender struggling with losses tied to subprime mortgages.

High price tag

Berkshire’s original Class A shares carry one of the highest price tags on Wall Street. Today, each one sells for 68% more than the median price of a home in the U.S. 

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Berkshire Hathaway A shares, long term

That’s because Buffett has never split the stock, arguing that the high share price attracts and retains more long-term, quality-oriented investors. The Ben Graham protégé has said that many Berkshire shareholders use their stock as a savings account.

Still, Berkshire issued Class B shares in 1996 at a price equal to one thirtieth of a Class A share to cater to smaller investors wanting a small piece of the Buffett’s performance.

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Exchange-traded funds have ‘tax magic’ that many mutual funds don’t offer

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Israel Sebastian | Moment | Getty Images

Investors who hold exchange-traded funds can often escape a tax bill incurred by those with mutual funds, which are generally less tax efficient, according to investment experts.

ETFs and mutual funds are baskets of stocks, bonds and other financial assets overseen by professional money managers. But they have a different legal structure that bestows ETFs with a “tax magic that’s unrivaled by mutual funds,” Bryan Armour, the director of passive strategies research for North America and editor of the ETFInvestor newsletter at Morningstar, wrote this year.

That tax savings relates to annual capital gains distributions within the funds.

Capital gains taxes are owed on investment profits.

Fund managers can generate such taxes within a fund when they buy and sell securities. The taxes then get passed along to all the fund shareholders, who owe a tax bill even if they reinvest those distributions.

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The ETF tax advantage is by virtue of “in-kind creations and redemptions,” which essentially provides for tax-free trades for many ETFs, experts explain. (The ETF’s in-kind transaction mechanism is somewhat complex. At a high level, it involves large institutional investors called “authorized participants,” which create or redeem ETF shares directly with the ETF provider.)

The tax advantage is generally most apparent for stock funds, they said.

For example, more than 60% of stock mutual funds distributed capital gains in 2023, according to Morningstar. That was true for just 4% of ETFs.

Less than 4% of ETFs are expected to distribute capital gains in 2024, Morningstar estimates. Such data isn’t yet available for mutual funds.

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Here’s a look at other stories offering insight on ETFs for investors.

Importantly, this tax advantage is only relevant for investors holding funds in taxable accounts, experts said.

It’s a moot point for retirement account investors like those with a 401(k) plan or individual retirement account, which already come with tax benefits, experts said.

The tax advantage “really helps the non-IRA account more than anything,” said Charlie Fitzgerald III, a certified financial planner based in Orlando, Florida, and a founding member of Moisand Fitzgerald Tamayo.

“You’ll have tax efficiency that a standard mutual fund is not going to be able to achieve, hands down,” he said.

However, ETFs don’t always have a tax advantage, experts said.

For example, certain ETF holdings may not be able to benefit from in-kind transactions, Armour said.

Examples include physical commodities, as well as derivatives like swaps, futures contracts, currency forwards and certain options contracts, he said.

Additionally, certain nations like Brazil, China, India, South Korea and Taiwan may treat in-kind redemptions of securities domiciled in those countries as taxable events, he said.

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Stocks making the biggest moves midday: MSTR, BA, NVDA

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