BRK.A Berkshire Hathaway Inc

By Anupreeta Das 

Ed Prendeville was driving through Omaha, Neb., one winter night in 1981 when he recalled that Warren Buffett, an investor he had read about in college, lived in the Midwestern town.

He made a mental note, and two years later the trader of collectible toy trains had scraped together enough to buy his first shares of Berkshire Hathaway Inc. for $1,300 apiece. Mr. Prendeville has been reaping the rewards of that decision ever since.

"It's my security blanket," the 64-year-old said of the shares, some of which now trade at over $200,000 each.

In 50 years at the helm of Berkshire, Mr. Buffett has transformed a struggling textile mill into a massive holding company with $200 billion in revenue and created a legion of unlikely millionaires--and even a few billionaires.

One of those shareholders is "Forty-Dollar Frank"--Frank Fitzpatrick, a Lake Tahoe, Nev., tax lawyer who occasionally introduces himself that way because he bought his first Berkshire shares for $40.

Mr. Fitzpatrick recalls buying about 200 shares in early 1976 at that price, only to sell them 14 months later after they had doubled. As the stock continued to soar, he regretted the move and bought back in at an even higher price. Since then, "I've always had a habit of running back to Berkshire," Mr. Fitzpatrick said.

In 1995, after he bought his lakefront home in Tahoe, Mr. Fitzpatrick said his family gathered on the deck "for a group hug and said, 'Thank you, Warren.'" Although he has used Berkshire shares to fund an education nonprofit, the 72-year-old says his remaining Berkshire shares will go to his two children.

Early Berkshire stockholders have used shares to finance children's educations, buy homes and put up collateral for loans. Hundreds of millions of dollars of stock already have gone to shareholders' alma maters, employers, cultural institutions and medical research.

As those longtime investors age along with Mr. Buffett, who is 85, they too are grappling with how best to pass it on. Mr. Buffett has pledged to donate almost all of his $62 billion fortune to charity and has already given away more than $25 billion. In an interview, he said he expects a "high percentage of big individual shareholders" will do the same.

The Berkshire chairman holds uncommon sway over shareholders of his company, and his influence helps explain how many of them view their wealth.

The billionaire has lived in the same house that he purchased in 1958 for $31,500. He often picks up breakfast for a couple of dollars at a McDonald's near his office and pays himself a salary of $100,000. He frequently drives himself around town in his Cadillac sedan.

Like Mr. Buffett, Berkshire shareholders are an unusual bunch. Every spring, tens of thousands of them, from money managers and corporate executives to farmers and rabbis, descend on Omaha for Berkshire's annual meeting, where their quirks are in full display.

At an annual dinner organized by a small group of shareholders on the sidelines of the meeting, the restaurant bill is usually split multiple ways. Omaha bartenders and waitresses say Berkshire shareholders are stingy tippers.

Mr. Buffett used to keep track of all his shareholders before they swelled into the tens of thousands. Beginning in the 1970s, as Mr. Buffett's renown began to grow, so did Berkshire's shareholder base.

There are hundreds of Berkshire millionaires in the Portland, Ore., area alone thanks to a money manager there who had the foresight to scoop up shares on behalf of clients in the 1970s.

The money manager, Mark Holloway, discovered Mr. Buffett in the early 1970s after Ben Graham, a legendary value investor who was Mr. Buffett's mentor, recommended that they meet. Mr. Buffett didn't have time, but Mr. Holloway said he began buying shares for himself and for clients of his firm.

Clients paid prices as low as about $400 a share and on average received fewer than a dozen each. Today, a few hundred are millionaires in the Portland area, said Mr. Holloway, who manages about $50 million of his own and clients' money.

Shareholders who want to sell their shares are staring at a huge tax hit given the stock's enormous rise in value. Charitable donations, meanwhile, are tax-free and deductible from federal estate taxes.

"Philanthropy is a smart way out as well as the good way out," said Andy Kilpatrick, the author of a 1,286-page book on Berkshire.

Jim Halperin, a Dallas shareholder who founded a rare-coin auction company, bought his first Berkshire shares in 1995 when they were trading around $30,000. His holdings are now worth about $19 million.

Mr. Halperin, 62, said his views on philanthropy were reaffirmed by Mr. Buffett's move in 2006 to donate most of his fortune primarily to a foundation run by Microsoft Corp. co-founder Bill Gates. Mr. Halperin said he donates about a quarter of his earnings each year to local causes, and that he and his wife plan to give most of their millions away.

In March, Omaha residents Bill and Ruth Scott joined the Giving Pledge, an effort by Messrs. Gates and Buffett to urge the world's billionaires to give at least half their fortunes to charity during their lifetimes.

Mr. Scott was the first employee of Mr. Buffett's investment partnership in the early 1960s and spent his career at Berkshire, accumulating enough stock to become very wealthy. "Ruth, a farm girl, likes to compare a 'pile of money' to a 'pile of manure,'" the Scotts wrote Mr. Buffett. "Neither one does much good unless you spread it around!"

Mr. Prendeville, who bought Berkshire stock after driving through Omaha, lives in New Jersey and makes a living buying and selling collectible trains, said that as profits at his Parsippany-based business grew, he invested nearly every cent in Berkshire stock. He put some in accounts for his children and some in a retirement account for himself. His two sons grew up indulging their passion for race-car driving, an expensive hobby Mr. Prendeville might not otherwise have been able to support. His Hyundai sports a sticker that reads "In Berkshire Hathaway We Trust."

In 2007, he was diagnosed with colorectal cancer. Without his Berkshire shares, Mr. Prendeville said it would have been hard to pay for cutting-edge treatment that his insurer refused to cover. "I was able to write a check," he said.

Mr. Prendeville--who once found Mr. Buffett a toy train set modeled after the Midwestern Hiawatha train that the billionaire coveted as a child--said he is now turning to estate planning. He has no plans to start a foundation of his own but said he is struggling to figure it out.

"Where is one dollar of mine going to make the most difference?" he said. "It's not easy."

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(END) Dow Jones Newswires

October 21, 2015 05:44 ET (09:44 GMT)

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