Warren Buffett's legendary company Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) is one of the most popular investments in the world. And fair enough.
Many investors (including this writer) can't resist hitching their financial wagons to a company (and an investor in Buffett) that has achieved some of the most remarkable returns of any stock on the US markets over the past 60 years or so.
To illustrate, one Berkshire Class A share was asking US$1,345 each back in May of 1984. Today, that same share (with no stock splits) was going for US$619,250 at recent pricing. That's a return of around 46,000% over four decades, enough to make anyone who was lucky enough to own even one share over this period immensely rich.
Buffett himself only owns Berkshire stock, which is why he has an estimated net worth of US$136 billion today.
But those returns reflect the past, not the future of course. So are there any reasons to buy Berkshire Hathaway shares today? Well, I can think of two reasons to buy and one reason why investors might want to hold off.
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2 reasons to buy Berkshire Hathaway shares today
First up is Berkshire's enormous and diversified portfolio of underlying investments. Unlike most companies, Berkshire has diversification built in. This stock basically functions as a holding company for Buffett's underlying investment portfolio. It owns dozens of listed and unlisted assets within it, including public companies, private companies, and government bonds.
Some of Berkshire's most famous holdings, which have been held for decades in some cases, include Coca-Cola, American Express, Chevron, Bank of America, Kraft Heinz, Geico, BNSF Railway, See's Candies and Dairy Queen. The company's largest investment by a country mile is a massive stake in a company we all know – Apple.
But simply, an investment in Berkshire is an investment in a vast and diverse collection of some of the best businesses in America, if not the world.
The second reason to buy Berkshire Hathaway shares today is the company's culture. Buffett might be in his 90s (more on that in a moment). But he has worked assiduously over the years to ensure that the company's culture of seeking substantial but honest returns for long-term investors remains Berkshire's north star. Buffett's right-hand man, Charlie Munger, is sadly no longer with us. But Buffett has handpicked Greg Abel as his successor at the company, and has also employed two investment officers – Todd Combs and Ted Weschler – in which he has confidence. Buffett tells us that Berkshire will remain in good hands as a result for decades to come.
Why not buy Buffett's company?
Well, the elephant in the room when discussing investing in Berkshire today is Buffett's age. At 93, Buffett's time at Berkshire and on this planet is lamentably in its inevitable twilight.
Now Buffett may have put a succession plan into place that most investors would be confident in. But at the end of the day, there is only one Warren Buffett. Investors have no guarantee that Abel, Weschler and Combs will be able to keep Berkshire's past track record going at Berkshire once Buffett has exited the stage.
In addition, Berkshire is a giant of a company today, with a market capitalisation of close to US$900 billion. At this size the company's growth rate will be difficult to maintain, a problem Buffett himself has struggled with in recent years. Investors might have to face an eventual breakup of Berkshire once Buffett is no longer at the helm, which would make the company's future even more uncertain.
Foolish takeaway
I'm a shareholder of Berkshire myself, and I would happily buy more shares today if the price were right. Even though Buffett is getting on, I have confidence that he has set up Berkshire for success well into the future. But once Buffett has left the building, investors might want to endeavour to keep a closer eye on the company he will leave behind than they are used to.
