Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) is a hard stock to understand if you think of it as a company. But if you shift your mindset a little bit and look at it as the investment vehicle of Warren Buffett and his team, the buy/sell decision becomes a little easier.
Here's why buying Berkshire Hathaway while it is still trading near its all-time high of $483 per B share might be a good choice for a lot of investors.
What is Berkshire Hathaway?
Berkshire Hathaway is probably best thought of as a conglomerate, which means it is a holding company that owns other companies. This is a fairly common structure, but Berkshire Hathaway is really a conglomerate on steroids.
If you look at the annual report for most companies, the business description can range from as little as a paragraph to maybe a page or two of text. Berkshire Hathaway's business description in 2023 went on for 24 pages!
Some highlights include the company's utility, railroads, oil & gas pipelines, insurance, retail, chemical, home furnishings, automotive, restaurant, airline, and wholesale distribution businesses. And that's just a quick, high-level list -- there's way more detail if you take the time to dig into the 10-K . And even that doesn't actually tell you the whole story.
In addition to the companies that Berkshire Hathaway owns outright, it also owns large stakes in public companies like Coca-Cola and American Express , among others. The list of stocks that Buffett owns in Berkshire Hathaway is probably one you will be more familiar with because it gets a lot of attention in the financial press. Buffett's buying and selling is watched very closely.
This brings up the investment approach taken by Buffett and his team. To simplify things greatly, he likes to buy well-run companies while they are trading at reasonable, if not cheap, prices.
What he does next, however, is the real key to his success: He holds for the long term, allowing good management teams to build the company's business over time.
Is now the time to buy Berkshire Hathaway?
Shares of Berkshire Hathaway's B share class are currently just a touch below their all-time high of $483 per share. If you are a value investor, that would suggest that the stock is not likely to be trading hands cheaply right now.
A bear market, which is virtually impossible to predict, is all that's needed for investors to throw the baby out with the bathwater. Given the long-term success of Buffett's approach with Berkshire Hathaway, it certainly looks like it is the baby in that scenario.
But if you look at the long-term performance in the chart, you'll notice something important. No, it isn't the fact that Berkshire Hathaway has beaten the S&P 500 over the long term. It is that, like the S&P 500 index, Berkshire Hathaway has continued to reach new heights despite occasional pullbacks. Those pullbacks are really opportunities to buy the stock.
However, that opportunity exists only if you have what it takes emotionally to buy when everyone else is selling. That's a contrarian approach that is very hard to embrace.
But given the fact that Berkshire Hathaway is such a wide-ranging conglomerate, it is probably reasonable to view it as something similar to a mutual fund. In that case, you are buying the investment services of Warren Buffett and his team. Is there a wrong time to hire a great employee?
Take the middle ground with Berkshire Hathaway
Right now probably isn't the "best" time to buy Berkshire Hathaway shares, but buying when it is the "best" time will be very hard for most investors. A middle-ground approach is to buy the B shares now, even while they are trading close to their all-time high of $483, but hold back on making the full commitment you want to make, instead only initiating a starter position. That way, you have skin in the game and, when the stock falls dramatically, you'll have more reason to see it as a buying opportunity. This is a nuanced approach, but Berkshire Hathaway isn't your normal company.
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