Berkshire Hathaway (BRK.A 1.57%) (BRK.B 1.42%) is a stock that most investors know about and that many would like to say they own. The problem is that buying a share of the conglomerate is rather costly, noting that the A share class has a 52-week high of around $647,000! With this stock now comfortably below $625,000, should you buy it? There are a few things to consider first.
Berkshire Hathaway comes with more than one option
Berkshire Hathaway actually has two share classes, one with a price tag in the hundreds of thousands of dollars and the other with a more modest price in the hundreds. The more expensive shares can be converted into 1,500 of the less costly ones at the holder's option. Essentially, they both represent ownership in Berkshire Hathaway, just at different percentage levels. So, the first thing any investor needs to consider is which share class is more attractive.
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The A and B shares generally trade in lockstep with each other, so the real question is how much money you have to spend. Most will probably want to opt for the B shares, given the lower price point. Berkshire Hathaway's B shares are currently trading at about $410 per share, down from their $52-week high of roughly $430.
What exactly is Berkshire Hathaway?
The bigger question for most investors will be what they are buying when they add Berkshire Hathaway to their portfolio. This isn't as easy to discern as you might think. Although the company is usually lumped into the financial sector, its business goes well beyond that segment of the market.
For example, while Berkshire Hathaway owns the insurer GEICO, it also owns BNSF Railway, one of the largest train companies in North America. And it owns several regulated large utilities. And a number of midstream energy companies. These three businesses are so large that they get broken out as a separate item on Berkshire Hathaway's balance sheet. However, it also owns retail businesses, manufacturing operations, and chemical companies, among other things. Then there's the nearly $336 billion portfolio of stocks that Berkshire Hathaway owns.
In many ways, Berkshire Hathaway is more like a mutual fund than a company. That leads to two important concepts. First, you are really buying into the investment approach of Chief Executive Officer Warren Buffett. Second, even though there will be times when Berkshire Hathaway stock is out of favor, there's really no good or bad time to buy an investment approach. To sum up that approach, Buffett tends to buy historically well-run companies when they are out of favor, and then he holds on to them for the long term.
If that sounds like a good investment plan, then you might want to consider buying Berkshire Hathaway while it is trading below $625,000 per share (or around $415, in the case of the B shares). That said, the stock, despite the pullback from 52-week highs, is trading just a percentage point or two below its all-time highs. If you would rather wait for a lower price, 20% pullbacks aren't at all uncommon here.
The one thing you need to consider if you decide to try to time your entry point is that Berkshire Hathaway often pulls back sharply when the broader market is also pulling back sharply. So, it can be hard to pull the trigger if you don't make a specific plan to buy it ahead of time. Put another way, don't think you'll buy when the time is "right" because Berkshire Hathaway stock is likely to be most attractive while investors are selling stocks indiscriminately in a bear market. It's hard to be a contrarian when there's blood in the streets.
Never a good time to buy Berkshire Hathaway
In some ways, there's really no good time to buy Berkshire Hathaway. When the stock is doing well, it might look expensive. When the stock is "cheap," it will be hard to justify buying anything, let alone Berkshire Hathaway, because of a bear market. All in, if you want to buy Berkshire Hathaway you should probably just go ahead and start a position when you have the cash to do so. Over the long term, this unique stock has easily outdistanced the S&P 500 index because of the way the company is run, not because of any specific business within the company's highly diversified portfolio of investments (fully owned or partially owned). The one thing you do need to closely track, however, is that the investment approach doesn't change.
