2 reasons to buy Berkshire Hathaway shares today (and one not to)

Buying Warren Buffett's company isn't the obvious win that it used to be…

| More on:
Legendary share market investing expert and owner of Berkshire Hathaway Warren Buffett

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

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.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Sebastian Bowen has positions in American Express, Apple, Berkshire Hathaway, Coca-Cola, and Kraft Heinz. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Bank of America, Berkshire Hathaway, and Chevron. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Kraft Heinz. The Motley Fool Australia has recommended Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

A happy young boy in a wheelchair holds his arms outstretched as another boy pushed him.

These 2 ASX shares could win big time in the long term

I think these stocks have very appealing outlooks.

Read more »

Two excited woman pointing out a bargain opportunity on a laptop.

2 great value ASX shares I want to buy

These stocks are high on my watchlist.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop

1 ASX 200 dividend stock down 20% to buy right now

This beaten-up ASX share could be a top pick for dividends and stability.

Read more »

Man sitting in a plane looking through a window and working on a laptop.

2 cheap ASX 200 shares I'd buy in May

I think these stocks are too cheap to ignore.

Read more »

Invest written on a notepad with Australian dollar notes and piggybank.

I'd invest $10,000 into these excellent ASX shares for the long term

I’m bullish about these top stocks.

Read more »

Young woman using computer laptop with hand on chin thinking about question, pensive expression.

Should you buy Telstra stock on a pullback?

Is this telco a buy for value hunters?

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.

1 overlooked ASX growth stock I'm chasing for multibagger potential

I believe this stock can create strong returns in the years ahead.

Read more »

a man sits back from his laptop computer with both hands behind his head feeling happy to see the Brambles share price moving significantly higher today

How I plan to invest my tax cuts

I have big plans for my tax cut cash this year.

Read more »