Shares of Berkshire Hathaway (BRK.A -0.34%) (BRK.B -0.56%) have risen over 990% since the turn of the century. That trounces the total return, which assumes dividend reinvestment, of the S&P 500 index, which was 480% over the same span. After such a long and impressive streak of outperformance does it make any sense at all to buy Berkshire Hathaway stock? The answer isn't really yes or no. Here are some things to consider before making the final call.
Berkshire Hathaway is not your typical company
Most companies you examine will operate in a fairly narrow line of business or in just one sector. Some will be conglomerates and operate in a few lines of business or sectors. Berkshire Hathaway is like a conglomerate on steroids; it operates in the finance, energy, utility, transportation, retail, construction, and manufacturing sectors, among others. Believe it or not, that's not a complete list! And within some sectors it owns more than one business.
On top of that, Berkshire Hathaway invests in the shares of other companies. In this case it owns a small part of the company but does not control it. Some of Berkshire's largest holdings include Apple, Coca-Cola, American Express, and Chevron. There is so much going on under the covers at Berkshire Hathaway that it is a fairly difficult company to follow. You pretty much have to trust that management is keeping track of the important things.
In many ways, Berkshire Hathaway is more like a mutual fund than a traditional company. Viewed with that lens, there's really no good or bad time to buy the stock. The key is to believe in the way the company is being run.
Who runs Berkshire Hathaway?
If the way Berkshire Hathaway is run is the most important factor, much like it would be with a mutual fund, then you want to know a little more about CEO Warren Buffett. Buffett is probably one of the most famous investors of all time and is most certainly one of the best-known investors of modern times. His approach was shaped by some of the most famous investors, including value investor Benjamin Graham and growth investor Philip Fisher.
To vastly simplify Buffett's approach, he likes to buy good companies when they are reasonably priced. Then he keeps tabs on the management team to make sure it is doing a good job. He only gets involved with a company's operations if there's a good reason to do so, which might include lingering poor performance or to help finance a company's growth plans. Broadly speaking, this approach is consistent across both the owned businesses and the stock portfolio.
One thing that Berkshire Hathaway does not do is pay a dividend. That's because Buffett would prefer to keep as much cash in the company as possible so he can use it to invest. Given the long-term success here that probably won't bother many investors. However, if your investment goal is income, Berkshire Hathaway is not going to be the right stock for you.
That said, if you would like to invest alongside an investor who has been dubbed the Oracle of Omaha because of the impressive success he has achieved, then Berkshire Hathaway should be in your portfolio. The best option for most investors will likely be the B share class. Each class A share is equal to 1,500 B shares, which reduces the cost of owning Berkshire from an astonishing $610,000 per share or so to a far more reasonable $400 or so. Clearly, most small investors will find it easier to buy the B shares.
A hard stock to follow
In some ways Berkshire Hathaway is an easy company to understand since it is very similar to a mutual fund. In other ways it is among the most difficult, since you will find it hard to track all of the businesses under the Berkshire Hathaway umbrella. If you are willing to simply trust that Warren Buffett and his team will continue to execute at a high level the stock might be right for your portfolio. If you want income or prefer to have a deep understanding of all of the investments you own, you might want to skip the stock. Basically, it depends. And the key variable isn't really Berkshire Hathaway as much as it is your own investment preferences.
