This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

When 2026 gets underway, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) will see the biggest change in its business in decades. That is when investing icon Warren Buffett hands the CEO reins to Greg Abel. Don't fret, however, because Abel is being given a huge parting gift. Here's one very large reason why now is a great time to buy Berkshire Hathaway stock.

Not such a big handover

The media has made a very big deal over Buffett's decision to retire as CEO of Berkshire Hathaway. That's not surprising, given his long history of success in running the company. However, it is important to note that he isn't stepping away and cutting all ties. He will remain the chairman of the board of directors. This is important. 

Currently, Buffett is Abel's boss. After Abel takes over the role of CEO, Buffett will still be his boss. The new CEO is likely to have free rein to manage the company as he sees fit, but only within reason. Buffett tends to be a hands-off manager, but he isn't an absentee manager. He will likely make himself available to Abel as needed and provide a backstop if things start to go south. Abel needs to prove himself, but he isn't flying solo. 

Furthermore, Abel isn't entering the role with no experience. He has worked for Berkshire Hathaway for decades. He has spent the last few years as the designated heir apparent, meaning he's likely been deeply involved in major decisions. Basically, he's well-trained in Buffett's investment approach. Given the success Buffett has achieved, it is highly unlikely that Abel tries to reinvent the wheel.

Abel is starting with a huge backstop

The primary reason to buy Berkshire Hathaway, even during this time of transition, is found on the balance sheet. It isn't really one reason; it is 381 billion reasons. That's the size of the cash hoard Abel is being handed as of the third quarter of 2025.

That $381 billion provides several benefits. It means there's some leeway for Abel to make a mistake or two. It will provide support to the company when, not if, a bear market comes along. And it gives Abel plenty of firepower to buy companies, either outright or in part, in the public market. This is exactly what Buffett has long done as he's built his successful track record.

In fact, in many ways, buying Berkshire Hathaway is really investing alongside the CEO. Historically, that meant giving Buffett your savings to invest. In the future, it will mean allowing Abel that privilege. Most investors should probably think of the company more like a mutual fund than an actual business.

That's not hyperbole. Berkshire Hathaway's portfolio of publicly traded stocks is closely followed by Wall Street. But beyond that, the massive conglomerate owns another 189 companies in their entirety. All of the company's investments are treated similarly. Their management teams have a free hand so long as things are going as expected. If things aren't going well, Buffett steps in to help. Abel will do that in the future, so the basic investment story is the same.

There's never a bad time to hire a good asset manager

Abel will have to prove himself, but given the backstops he has, it seems like he's being set up for success. Those backstops include Buffett's continued presence at the company and, even more importantly, the massive cash balance he's being handed to fund the company's future growth. All in all, if you are a long-term investor, it could still be a great time to buy Berkshire Hathaway stock even as an important leadership transition is being made.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Most modern investors, and probably most people in general, know about Warren Buffett, the CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B). But fewer people know the man who helped to train him, Benjamin Graham. Right now, however, is a good time to think about one of value investor Graham's most prominent contributions to Warren Buffett's investment approach. It has had a $344 billion effect on Berkshire Hathaway.

The Warren Buffett way

Berkshire Hathaway is best described as a surprisingly diversified conglomerate. The company owns 189 companies outright, and it also has a large portfolio of publicly traded stocks. The truth is that Berkshire Hathaway isn't a normal company at all -- it is best seen as the investment vehicle of Warren Buffett.

Buffett's investment approach is deceptively simple. He likes to buy good companies when they are attractively priced, and then hold them for the long term. Each part of that approach is important, but one stands out today in an important way. Buffett doesn't chase stocks -- he waits for "Mr. Market" to get irrational and offer up deals that are hard to refuse.

"Mr. Market" is the construct of Benjamin Graham, who was a value investor. Graham used Mr. Market to highlight that investors can, and do quite frequently, missprice stocks to the upside and the downside. Investors are supposed to try to figure out if the long-term value of a business is worthwhile relative to the price the stock is being afforded by Mr. Market. Pay too much, and even the best company can end up leading to losses in your brokerage account.

Buffett has long taken Graham's value focus to heart, though he has softened his value focus over time. Still, if he can't find something worth buying, Buffett will just sit on cash and wait. Conversely, he will consider selling stocks that the market may be overeager to buy, even if that means letting the sale proceeds sit on the balance sheet in the form of cash and short-term investments (Treasury bills, for example).

BRK.A data by YCharts.

The $344 billion warning you'll want to think about

Over the last couple of years, Buffett has been channeling his inner Graham. He has been selling stocks, and with the S&P 500 (SNPINDEX: ^GSPC) near all-time highs, he hasn't chosen to make any significant investments. As of the end of the second quarter of 2025, the outcome is a massive $344 billion cash hoard sitting on the balance sheet.

That's a drag on the company's financial performance. Sure, interest rates have risen so that cash is earning interest income that, given the total sum on cash, adds up to a material figure (Berkshire Hathaway generated roughly $6 billion in interest and dividend income in Q2). But Buffett could probably achieve higher returns with a good investment, given Berkshire Hathaway's track record as a business.

Ultimately, it's a big deal that Buffett can't find anything he wants to buy. Well, almost. Just as he's planning to step down as Berkshire Hathaway CEO (he's going to remain the chairman of the board of directors), Buffett has agreed to pay around $10 billion for Occidental Petroleum's (NYSE: OXY) chemicals business. The chemicals sector is out of favor right now, so he probably got a bargain.

Here's the thing. While the Oxy deal is material in size, it represents less than 3% of the cash on Berkshire Hathaway's balance sheet at the end of Q2. Simply put, Buffett found a deal, but he's still not finding enough good deals to put a lot of cash to work.

The warning you shouldn't ignore

Buffett hasn't stopped investing, and you probably shouldn't either. But he is being highly selective, and you should probably be just as selective, too. All of that cash is a warning that the market is expensive today. That's highlighted by the lofty levels of the S&P 500 index, but the excesses are broader than that, considering recent hot trends like AI and meme stocks.

If you follow Buffett, pay attention to the warning that his actions are giving. It's probably a time to be more cautious than aggressive when you make your investment decisions. Benjamin Graham would likely tell you the same thing. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Occidental Petroleum. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Key Points

• Berkshire Hathaway is the investment vehicle of Warren Buffett and his team.

• The company's stock has vastly outperformed the broader market, thanks to the way in which Buffett invests.

• Berkshire Hathaway is about to see a huge change in the way it's run.

Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) is an interesting name. Today it represents the conglomerate that Warren Buffett built. But, before Buffett bought the company, it was a failing clothing business. That clothing business ultimately closed under Buffett's watch, representing one of his most prominent failed investments.

A long run of good investments has turned that failure into a huge success. However, in one year's time, there's going to be a very big change at Berkshire Hathaway.

What does Berkshire Hathaway do?

Berkshire Hathaway is a conglomerate. Conglomerates often operate in a few different business lines, sometimes with each business having its own brand identity. Berkshire Hathaway took that model and ran with it. At the end of 2024, Berkshire Hathaway had 189 subsidiary companies!

But that's not the whole story. That list of 189 companies includes a couple of large insurance businesses. Insurance companies collect insurance premiums up front and they pay out money to cover losses in the future. The premiums get invested until the cash is needed to fund payouts. This is what's known as "float" on Wall Street. Insurance companies can keep whatever they earn on the float.

Berkshire Hathaway has long invested the float in the stock market, with a large portfolio of stocks augmenting its owned businesses. Some of the company's long-term holdings include Coca-Cola (NYSE: KO), American Express (NYSE: AXP), and Chevron (NYSE: CVX). That diversity is replicated in the company's owned investments, in a wide-ranging investment portfolio.

Essentially, Berkshire Hathaway is something like a mutual fund. When you buy the stock, you are, effectively, investing alongside CEO Warren Buffett. As the chart below highlights, doing so has worked out very well for investors over the long term.

BRK.A Total Return Level data by YCharts.

Things are about to change at Berkshire Hathaway

So, from a big-picture perspective, buying Berkshire Hathaway is really buying into Buffett's investment approach. To briefly summarize that approach, Buffett likes to buy well-run companies while they are attractively valued and then hold them for the long term to benefit from the growth of their businesses. Simple to say, hard to do. Yet, clearly, Buffett has executed his investment approach incredibly well over time.

At the end of 2025, he is going to retire as CEO of Berkshire Hathaway, handing the reins to Greg Abel. Since Abel isn't Buffett, the company will inherently be different one year from now. The question is: How different?

The good news on this front is that Buffett isn't cutting and running. He is slated to remain as the chairman of the board of directors. So Abel is, technically, still Buffett's employee. Buffett generally takes a hands-off approach, but if Abel is struggling, it's likely Buffett will step in to help.

There's also the fact that Abel has worked for Berkshire for over two decades. So he is steeped in the Oracle of Omaha's approach. Because he is a different person, there will inherently be differences in the way he approaches the CEO role. But given his long association with such a successful CEO, it also seems likely that he will try his best to heavily incorporate Warren Buffett's teachings into whatever he does.

Different, but not that different

As an investor, if you're worried that Buffett stepping down will lead to Berkshire Hathaway dramatically changing the way it is run, that's probably not going to happen. Still, the CEO change is material, so investors should keep a regular eye on the business. The company will be different in an important way in a year, with Abel stepping in to fill Buffett's very large shoes. But the basic approach taken at the top of the company probably won't be so different that Berkshire Hathaway will become a completely different company overnight.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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American Express is an advertising partner of Motley Fool Money. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway and Chevron. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Key Points

• Berkshire Hathaway's stock price has been crumbling of late, even as the S&P 500 index has been soaring to new highs.

• Longtime CEO Warren Buffett is stepping down in a matter of months.

• Investors buying Berkshire Hathaway stock today are stepping in ahead of what is likely to be the most watched CEO transition in modern history.

Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) is an iconic company that is, for now, run by one of the most famous investors in Wall Street history: Warren Buffett. But shortly after Buffett announced he would retire from his CEO role at the end of 2025, Berkshire Hathaway shares started to deflate. They are now down around 15%, and its class B shares are trading below $470. Is this a good opportunity to buy the stock?

What is Berkshire Hathaway, anyway?

Berkshire Hathaway is classified as a finance sector company largely because it has significant insurance operations. And that isn't a bad label to put on it -- every company has to be categorized somewhere -- but it doesn't do justice to the actual businesses owned by the diversified conglomerate. Berkshire Hathaway's corporate umbrella covers more than 180 wholly owned companies. It also holds a massive portfolio of publicly traded stocks.

The variety of businesses in the Berkshire Hathaway empire includes everything from insurance companies to manufacturers, from utilities to retailers, and from railroads to candy makers. And that's far from a complete list -- I could keep going, but you probably get the idea. What investors in Berkshire Hathaway are really buying is more akin to a mutual fund than a traditional company. And that means that when you buy Berkshire Hathaway, what you are really doing is investing alongside Buffett.

This is why the leadership transition from Buffett to his hand-picked successor, Greg Abel, is such a big deal. And it is why investors are selling the stock even as the market rises. The conglomerate's incredible long-term performance, which was based on Buffett's unique investment approach, likely contributed to the stock's premium valuation.

Is it time to jump ship or jump aboard?

For investors who only own shares of Berkshire Hathaway because of Buffett, it makes some sense to sell in the wake of his retirement announcement. There is no way to know what Abel will do at the helm of Berkshire Hathaway, and he has big shoes to fill. However, there are some things you ought to consider before making a buy or sell decision about the stock.

For starters, Buffett is retiring as CEO, but he is not completely leaving the company just yet. He will stay on as the chairman of the board of directors. That means that he will remain Greg Abel's boss. Although Buffett famously has a hands-off management style, when a Berkshire subsidiary needs an assist, he steps in. So we can expect that Abel won't be left adrift. He will still have access to the sage wisdom of the Oracle of Omaha to help him out as needed.

Then there's the important fact that Abel has worked for Buffett for decades. He is steeped in his mentor's investment approach and has played an important role in the conglomerate's investment process for several years, too. So when he's in the CEO seat, his investment approach will be based on Buffett's approach. Sure, Abel is a different person, so his style won't be identical to Buffett's. But they are highly likely to rhyme.

All in all, the CEO transition will be a huge deal for Berkshire Hathaway. But it may not be as dramatic a change as some fear when it comes to how the giant conglomerate operates. That said, Buffett is leaving Abel with a huge cash stockpile -- Berkshire had over $340 billion of cash on its balance sheet at the end of the second quarter. That will be a drag on near-term performance, but could also allow Abel the chance to hit the ground running since it could fund some sizable acquisitions.

The future is unknowable, but Berkshire isn't likely to change much

The recent slide in Berkshire Hathaway's share price is likely related to Buffett's impending retirement. That event is a big deal, but given Abel's long history with Buffett, it may not be as big a deal as some investors fear. If you only have Berkshire in your portfolio because of Buffett, selling could make sense. But if you simply want to be a long-term investor in a Buffett-like investment approach, then there's literally no better option than Berkshire Hathaway. And the stock's decline below $470 could make this a smart moment for you to get on board.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

If you spend any time around Wall Street, from just reading market news to actually working in finance, you know the names Warren Buffett and Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), which is the company he runs.

Despite the stock's incredible track record, however, there are reasons it may not be the smartest investment you can make. But there are also reasons it could be a great choice. Here's what you need to know.

Why you should avoid Berkshire Hathaway

The first big reason that an investor might not want to buy Berkshire Hathaway is that it doesn't pay a dividend. And it doesn't appear likely that it will anytime soon. So, if your goal is to generate income from your portfolio to pay for living expenses in retirement, you will not want to buy Berkshire Hathaway stock.

The second reason to avoid Berkshire Hathaway is its complexity. The large insurance operations within the company's portfolio of businesses typically lead it to fall into the finance sector. But the truth is, it is a widely diversified conglomerate. It owns over 180 companies outright and has a portfolio of publicly traded stocks, too. It has exposure to industries as varied as retail, railroads, and manufacturing and a whole lot more in between. If you like to keep your investments simple, this will not be the best option for you.

In that vein, Berkshire Hathaway is kind of like a mutual fund, given that you are, effectively, allowing Warren Buffett and his team to invest on your behalf. To be fair, the company's stock has vastly outperformed the S&P 500 index over time. So, trusting Buffett has worked out very well for investors. But if you like to directly handle all your investment decisions, owning Berkshire Hathaway probably won't be a great call.

BRK.A data by YCharts.

Letting the Oracle of Omaha do it for you

That said, as the chart above highlights, owning Berkshire Hathaway stock has been a big win for investors over time. So, trusting Warren Buffett and his long-term investment approach has worked out well. From a simplistic level, all he's doing is buying well-run companies when they appear attractively valued and then holding for the long term to benefit from the companies' growth over time. Only, if it were really that simple, every investor would have an incredible performance record. And that's just not the case.

Investors who are willing to let an expert handle their hard-earned savings could do much worse than buying Berkshire Hathaway. That said, while the S&P 500 index has been heading higher lately, Berkshire Hathaway stock has been falling. At least part of the reason is that Buffett has announced his intention to step down as CEO. Long-term employee Greg Abel is replacing him at the end of 2025.

This change must be carefully thought through because a new CEO can lead to significant shifts in the way a business is operated. But that's unlikely to happen at Berkshire Hathaway. First off, Buffett is stepping down as CEO, but he will remain chairman of the board, which means he will remain Greg Abel's boss. It is unlikely that Buffett will allow Abel to fail miserably without stepping in to help.

And then there's the not-so-subtle fact that Abel was, effectively, trained by Buffett. Just like Buffett was trained by famed value investor Benjamin Graham. Charlie Munger, Buffett's former partner, provided some educational input, too. Abel has a very impressive educational background as an investor. While he will most certainly do things differently, it seems likely that he won't abandon Buffett's basic approach to chart an entirely new course.

Berkshire is a smart pick for the right investor

Berkshire Hathaway won't be the smartest investment choice for all investors, despite its strong historical stock performance. But if you don't mind entrusting someone else to handle your savings and believe that Abel will carry on the Buffett approach, it could still be a very attractive investment choice for your portfolio.

The one remaining caveat is that Berkshire Hathaway is so large today that future growth may be less impressive than past growth. But with over $345 billion in cash on the balance sheet, a bear market could present a huge investment opportunity that gives Abel the option to boost growth beyond what seems probable with the market trading near all-time highs today.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) will likely report first-quarter 2025 earnings on or around May 2. You might want to buy it before that date even if you have the same question on your mind as everyone else.

That question is highly likely to be, "What is CEO Warren Buffett investing in?" And it highlights why Berkshire Hathaway is a buy today and why the company is different from just about every other company you can buy.

Berkshire Hathaway's big move in 2024

Berkshire, which is technically a massive conglomerate, had an interesting year in 2024. The big news was the fact that Buffett and his team spent the year selling far more often than buying within the company's stock portfolio. To put some numbers on that, cash and short-term investments nearly doubled last year.

Given that the S&P 500 index is in correction territory today (down by more than 10%), that may sound like a prescient move on the part of the man known affectionately as the Oracle of Omaha. While the decision to sell assets was likely related to valuation concerns, Buffett's investment approach doesn't include market timing. So it was likely more of a happy coincidence than anything else. Indeed, Berkshire Hathaway is so large that it has to move slowly and deliberately.

Regardless of how or why Buffett and his team dramatically increased the cash on the company's balance sheet, it is well positioned to weather the market uncertainty. And, more importantly, to step in as a buyer when he believes it has found an attractively priced investment.

That could happen within its portfolio of publicly traded companies or within its large collection of fully owned businesses. The first-quarter update will be scoured for indications that Buffett believes it is time to start buying again.

A vastly different kind of company

The fact that investors are likely to be more interested in the investment decisions of Warren Buffett than the performance of the conglomerate that he and his team manage is important. Basically, Berkshire is his investment vehicle.

As the chart below highlights, that vehicle has vastly outperformed both the price performance and the total return of the S&P 500 index over time.

BRK.A data by YChart.

Very few investors have achieved this level of success. It makes sense that Wall Street would hang on Buffett's every word and his every investment decision.

From an individual investors' point of view, however, when you buy Berkshire Hathaway, you are likely doing so because you want to give Buffett your money so he and his team can invest it for you. That, plus the large and diversified portfolio of companies it owns, make Berkshire much more like a mutual fund than a traditional company.

If you view the company in this manner, then the upcoming earnings release around May 2 is actually kind of meaningless. All it takes is one simple question to prove why: Is there ever a bad time to hire a good money manager?

Sure, there will be better and worse times to invest, given the inherent volatility of the stock market. But giving Buffett and his team your cash to invest for you is likely to be a solid choice no matter what is going on in the broader market or in the economy.

Forget about May 2, focus on the real business

In the end, May 2 is just a random date with little to no meaning. Sure, the company will provide an update on its business performance, which may be good or bad. But the real update will be around the investment decisions Buffett and his team are making on behalf of shareholders. That's the real business of Berkshire Hathaway and why now is as good a time as any to buy the stock.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) is one of the most closely watched stocks on Wall Street. Its CEO, Warren Buffett, is one of the most followed investors of the modern era.

The next five years could be very transformative for Berkshire Hathaway. Here are two potentially large changes to watch for.

Berkshire Hathaway had a big 2024 in one important way

Investors were watching Berkshire Hathaway all year long in 2024, which isn't unusual. But there was one financial statement that seemed to make the news more than any of the others: the balance sheet. The giant conglomerate started the year with nearly $168 billion in cash. That's a lot of money, to be sure, but the cash hoard only went higher from there.

In the second quarter, thanks largely to asset sales within the company's stock portfolio, the cash balance increased to roughly $277 billion. It went up to $325 billion in the third quarter. And Berkshire Hathaway's balance sheet ended the year with $334 billion worth of cash and short-term investments on it. In one year, Buffett and his team nearly doubled the cash they had available to them for investing.

There are any number of reasons for why the cash hoard might have been raised, with the real reason remaining unknown, since Buffett isn't offering an explanation. However, there are two things that are important about Buffett's investment approach.

First, he is happy to hold cash if he can't find anything to buy. Second, when he finds something to buy, he has no problem making a sizable investment, including buying entire companies.

Five years is a long time on Wall Street. The broader markets are somewhat volatile right now, and it is entirely possible that there will be a bear market sooner rather than later. If that happens, it is highly likely that Berkshire Hathaway puts that cash to good use, expanding its already massive company portfolio. That money could be used to buy publicly traded stocks or entire companies, but either way, it is reasonable to expect big news out of the company on this front.

Data by YCharts.

What about Warren Buffett?

The next issue that could come to the fore over the next five years involves Warren Buffett himself. He has been a mainstay on Wall Street for decades, providing shareholders with market-beating returns and earning him the nickname the Oracle of Omaha. But today, after such a long and incredible run, he is 94 years old, having been born in 1930 (he'll be 95 in August). To give some idea of how long that is, he was born during the Great Depression.

Buffett's longtime partner Charlie Munger passed away in 2023 at age 99. So concerns about Buffett's health are not the least bit out of context. In five years he would be around 99, long past the average U.S. lifespan, which is a little under 80 years. Buffett is an above-average investor, but he most certainly isn't going to live forever.

It seems highly likely that the board of directors will attempt to find and install his successor in the next five years. That could be out of choice or necessity. Right now, Buffett is working closely with Greg Abel, who he has clearly stated will replace him.

The change in leadership will be huge news, but investors should pay more attention to where the new CEO was trained. A huge portion of that training has come at Berkshire Hathaway and at the hands of Warren Buffett. All in, it may not be a big deal from a business perspective, but you'll want to watch closely just the same.

A lot could change very quickly at Berkshire Hathaway

On the business front, if Berkshire Hathaway has the opportunity to put its cash to work, it most likely will. And it could be a big splash, given the amount of cash on hand today.

That will be important to watch, of course, but the changes on the management side of the picture could be even bigger news. The next five years could easily be when the CEO transition finally happens. It isn't clear what that will mean for the company or the stock, given that Warren Buffett is so closely associated with Berkshire Hathaway right now.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

There is a list of investors that you might call Wall Street legends, and sitting near the top (if not at the very head of the list) is Warren Buffett.

Buffett is the chief executive officer of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), a stock that hasn't just beaten the S&P 500 Index (SP: .INX) over the long term, it has trounced it.

But don't worry, Buffett and Berkshire Hathaway aren't done making millionaires out of shareholders just yet.

What has Berkshire Hathaway done?

Warren Buffett lives in Omaha, Nebraska, and his superhero name is the Oracle of Omaha. Investors make an annual pilgrimage to listen to him speak at Berkshire Hathaway's annual meeting.

Why are so many investors so enamoured of this man? Because he's turned many of Berkshire Hathaway's shareholders into millionaires.

SPY data by YCharts

The chart above shows just how strong Berkshire Hathaway's performance has been since just the turn of the century.

While the S&P 500 index is up 300% on a stock-only basis and 530% when you look at total return (which assumes the reinvestment of dividends) Berkshire Hathaway's stock is up about 1,150%! Berkshire Hathaway doesn't pay dividends, so total return and stock price return are the same for the company.

That's a phenomenal performance, especially when you consider the company's business. If you go back further, the outperformance gets even more impressive.

Often viewed as an insurance company, Berkshire Hathaway is really a conglomerate with a highly diversified portfolio of companies inside of it. The business spans insurance, railroads, utilities, pipelines, retail, chemicals, and manufacturing, among many other sectors.

It's possible that Berkshire Hathaway is the most diversified company you can buy, to the point that it's almost like a mutual fund. In fact, when you buy Berkshire Hathaway shares, you should probably view it as hiring Warren Buffett to manage your money.

The good times probably aren't over for Berkshire Hathaway investors

Given the remarkable past performance and the size of the company today (it has a $1 trillion market cap), it is going to be hard for Buffett to generate the same kind of returns in the future that he has in the past.

It simply takes larger investments to move the needle today. And there are only just so many possible investments that are large enough, not even taking into consideration attractive enough.

But don't let that dissuade you from investing alongside Buffett, who has a simple but effective investment approach.

To sum it up, he tries to buy good companies while they are reasonably cheap and then lets managers do their jobs. The problem today is that the stock market is trading near all-time highs, and finding anything that's reasonably cheap is hard to do.

Buffett isn't letting that stop him from preparing for a future in which there are good investment candidates. One key aspect of his approach is that he doesn't mind holding cash if he can't find a place to put it.

And cash is starting to pile up on Berkshire Hathaway's balance sheet. The numbers are kind of staggering. The company ended 2023 with nearly $168 billion in cash. After the first quarter of 2024 that had grown to $189 billion. By the end of the second quarter cash stood at $277 billion. And now that the third quarter 2024 has been reported, investors around the world know that the cash hoard is sitting at $325 billion.

It seems very clearly like Buffett is gearing up for a time when he can put some cash to work, perhaps during a bear market. At that point, valuations will likely be much more attractive as he looks at the types of companies that could have an impact on Berkshire Hathaway's long-term financial results.

Time will tell, but history is a good guide

There's no way to know what will happen with Berkshire Hathaway in the future. It could start paying a dividend with all of that cash or repurchase huge swaths of its own stock.

However, history suggests that Buffett is more interested in putting that money to work in new investments when he thinks the time is right. For now, investors just have to sit and wait.

But when Buffett moves, it is likely to be big. And there's a good chance that Berkshire Hathaway will make some more millionaires along the way.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post This magnificent stock has made many millionaires, and could make more appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Stagflation: How to position an ASX stock portfolio
• How to build massive wealth with ASX shares

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

If there's one person in finance that almost everybody knows about it's probably Warren Buffett, the CEO of Berkshire Hathaway. His long-term investment success is nothing short of incredible.

Recently he's been selling Chevron (NYSE: CVX) and buying Occidental Petroleum (NYSE: OXY), but you should probably stick with Chevron. And maybe avoid Occidental Petroleum.

Here's why Buffett's decision is fine for him, but probably not right for your portfolio.

The energy sector is volatile

Before getting into the differences between Chevron and Occidental Petroleum (usually just called Oxy), it's important to discuss the broader energy sector within which they operate.

Oil and natural gas are commodities known for dramatic and often swift price swings. A great many things can impact energy prices, including supply, demand, economic growth, recessions, and geopolitical events. When oil prices rise, energy companies like Chevron and Oxy tend to perform better on the top and bottom lines. When energy prices fall, the reverse is true.

That said, some companies have proven better able to handle the industry's swings. Many of them are integrated energy companies.

Both Chevron and Oxy would be classified as integrated, with assets that span from the upstream (energy production) through the midstream (pipelines) and to the downstream (refining and chemicals). Each of these segments of the industry performs differently at different points in the energy cycle. When put together, they tend to soften the swings.

Chevron and Oxy are not interchangeable

Here's the thing. Chevron is an industry giant sporting a market capitalisation of around $270 billion. Occidental Petroleum is large, but still much smaller than Chevron, with a market cap of roughly $50 billion. Oxy has material aspirations to be a bigger player, which is why Warren Buffett invested in the business in the first place, helping the company beat Chevron in a bidding war for Anadarko Petroleum.

Recently, Buffett has been buying Occidental while selling Chevron (he still owns them both; he's just shifting between the two), suggesting he sees more long-term appeal in the smaller but growing energy company.

However, there's a major caveat for average investors. Oxy's approach is extremely aggressive. It took on too much debt when it bought Anadarko and ended up having to cut its dividend when oil prices tumbled shortly thereafter. Chevron, by comparison, has increased its dividend every year for 37 consecutive years. That's an incredible record in an industry that's known for its volatility.

Notably, Chevron also has an attractive 4.4% dividend yield. That's well above the 1.6% you'll collect from Occidental Petroleum and the 3.3% of the average energy stock, using Energy Select Sector SPDR ETF as an industry proxy. In fact, Oxy's dividend still hasn't recovered to its pre-cut level.

To be fair, the upheaval after the Anadarko acquisition has resulted in management operating more conservatively. For example, debt reduction was a prime talking point when it announced its more recent acquisition of Crown Rock (a much smaller deal). But the fact still remains that Chevron is in a stronger financial position than Oxy.

CVX Debt to Equity Ratio data by YCharts

In fact, Chevron has one of the lowest debt-to-equity ratios in the integrated energy arena. For most small investors, it simply makes more sense to buy a large, diversified energy company with a long track record of dividend growth supported by a strong balance sheet, especially if you compare it to a smaller peer with more leverage and a history of dividend cuts and overreaching.

What's good for Buffett may not be good for you

Warren Buffett's portfolio is gigantic and he is holding on to a huge cash position. He can afford to take risks that small investors probably shouldn't.

For conservative income investors, Occidental Petroleum is that risky, smaller company.

If you are looking for a reliable dividend stock in the energy patch, Chevron and its above-industry-average 4.4% yield is very much worth buying and holding for the long term.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 1 Warren Buffett stock to buy hand over fist and 1 to avoid appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• 3 ASX ETFs with market-beating potential over the next 10 years
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• Brokers name 3 ASX shares to buy right now

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway and Chevron. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Occidental Petroleum. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

I have been entrusted with my family's finances. It is not a task that I take lightly since a mistake on my part could leave us in the street. OK, that's hyperbole, but it is the weight that I feel, and bear markets don't make the weight any lighter. However, I have a playbook that I've lived by for years, and market sell-offs are actually a great time for me to keep building my passive income stream. Here's how I make downturns work for me.

One of the suggestions you'll find in Benjamin Graham's iconic book The Intelligent Investor is to focus on companies with long histories of success. A quick way to find such companies is to look at names with long histories of annual dividend increases. Dividend Achievers (10+ years of dividend increases), Dividend Aristocrats (25+ years), and Dividend Kings (50+ years) are all great starting points. From there, you need to dig in a bit to find companies that are well run with modest leverage. Once you have a diversified list of names you like, don't do anything. Just wait.

Safety first

I take my job as ensuring that my family has the financial wherewithal to handle financial adversity in relative stride. To that end, I have a laddered Certificate of Deposit (CD) portfolio with roughly six months' worth of living expenses in it. One of the six CDs I own matures every two months and automatically rolls over if I don't stop that process from happening. Essentially, I've always got access to some cash if I really need it, which makes buying stocks less stressful. The key is that this vital safety net is on auto-pilot. I thought about it once, setting it up, and now I never have to think about it again. I just know it's there. 

"Keep it simple" is a vital mantra for me because I'm just not capable of juggling too many things at one time. I share this because this same logic is important for my investment approach, as well.

Focus on success

The market goes up and, as we've seen in 2022, down. Wait for the stocks you like to come to you. I don't have a set buy point, but I generally only make an addition when the dividend yield of a company I like is trading at the high end of its historical yield range. It suggests that the price is at least cheap relative to historical norms. 

During the COVID-19 pandemic bear market, I bought real estate investment trust (REIT) Federal Realty (NYSE: FRT), which has an over 50-year-long streak of annual dividend hikes under its belt (it's the longest streak in the REIT space). This REIT owns a small retail portfolio that focuses on wealthy regions with sizable populations. Development and redevelopment are key company skills. Retail was deeply out of favor during the pandemic, but this company has proven many times over that it can handle adversity and keep rewarding dividend investors like me.

During this year's downturn, meanwhile, I added Texas Instruments (NASDAQ: TXN) and Medtronic (NYSE: MDT). Both are higher-dividend growth names with long histories of annual dividend hikes that had unique issues, but it took a bear to push them down to attractive levels finally. That said, investments pop up all the time, so I also added Kellogg (NYSE: K) in between those two bear markets when investors were downbeat on the iconic food stock because of company-specific problems, including a fire at a production facility and a strike. Kellogg's dividend hasn't increased annually but has trended regularly higher over time. Notably, Kellogg is actually up 15% or so this year as its production problems have abated.

Mindless adherence to a plan

Here's the next big step: I set all of those new purchases to dividend reinvest, just like virtually all of my stock holdings (and, basically, like my CD safety net). It's the ultimate keep-it-simple move for me. Based on my approach, I know I own companies that place returning value to shareholders high on the priority list. I've selected the dividend names I think are long-term winners, so I know I have great companies in my diversified portfolio. And I've set them on autopilot, leaving me to watch the quarterly dividend checks transform into additional shares of great companies. 

During bear markets, I actually find it comforting to see that I'm adding even more to a list of stocks that I own. Remember, however, that these are dividend stocks, so every share I add actually increases the passive income I generate. It's a slow process, but my dividend income has headed steadily higher for years without me having to do much of anything. Simple is good; autopilot is even better. When I retire, I plan to start collecting those dividend checks to supplement my Social Security payments.

Slow and steady

I'd be lying if I said I didn't pay close attention to my portfolio. I constantly monitor the news on my 20 or so stocks and listen to most of the earnings conference calls. If something fundamental changes, I'll rethink my commitment to a stock. But what I don't do is fret constantly about the price of my holdings going up and down in the always volatile stock market. I've basically worked that out of my process by focusing on dividends, dividend yield, dividend reinvestment, and my steadily growing stream of passive income. In my investing world, stock market sell-offs are just another opportunity to invest and reinvest in great dividend stocks.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Stock market sell-off: How I'm continuing to make passive income appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• Brokers name 3 ASX shares to buy right now

Reuben Gregg Brewer has positions in Federal Realty Investment Trust, Kellogg, Medtronic, and Texas Instruments. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Geopolitical tensions have gold and silver back in the limelight, as investors often view them as a safe haven. And high levels of inflation fuel the view that precious metals, as hard assets, can help protect against swiftly rising prices.

That's the good news, given that gold and silver have been rallying. But there's another factor to consider when you look at precious metals miners, and if you don't pay attention to it, you could end up getting hurt.

The basic model

Gold and silver mining is a fairly simple business to understand. First, find a place that has material deposits of these precious metals. Then get approval to build a mine. Build the mine. Extract the gold and silver and sell it.

Conceptually, that's pretty easy to get your head around. However, building a mine is a long and expensive process with material difficulties possible all along the way.

Indeed, there are only just so many places with enough of these precious metals to build a mine, and getting approval can be a headache. For example, Barrick Gold (NYSE: GOLD) has been trying to get approval for its Pascua-Lama mine on the Chile/Argentina border for roughly a decade and still doesn't have the final green light.

And the cost of building and running a mine is massive. Cleaning up when a company is done with the asset, meanwhile, is also complex and fraught with uncertainty.

Leverage

That said, the cost of a mine, once operational, is something of a line in the sand. When gold and silver prices are close to the line, miners can eke out a profit or dip into the red. But when precious metals prices are materially higher than the cost of production, profits flow swiftly to the bottom line.

For example, the gross profit margin for industry giants Barrick and Newmont (NYSE: NEM) has risen dramatically since mid-2019, along with the price of gold. To put some numbers on that, both companies had gross profit margin in the mid-20% range, but Newmont's is now in the mid-30% area while Barrick's is touching 40%.

GOLD Gross Profit Margin data by YCharts

Smaller miners tend to benefit even more from high prices since many have higher cost structures. And yet, in that statement comes the risk. Gold and silver are commodities subject to supply and demand. Rallies are generally followed by pullbacks.

When prices fall, the profitability of miners can fall materially, too. That is why investors need to pay close attention to all-in sustaining costs, which is an industry metric that takes into account operating costs and the investment needed to maintain production levels. Lower costs are better because they make it easier to turn a profit.

GLD data by YCharts

The problem today is that inflation is spreading throughout the world. That means operating costs for miners are likely to be heading higher. For example, all-in sustaining costs for Gold Fields (NYSE: GFI), another large precious metals miner, rose from $977 per ounce in 2020 to $1,063 per ounce in 2021, a nearly 9% year-over-year increase. 

To be fair, all-in sustaining costs can be impacted by capital spending plans, so investors need to dig in a little to see what's going on. However, with inflation hitting everything from commodities to labor, price increases are a red flag that investors can't afford to ignore. In some ways, the rising gold price, which is a major tailwind for miners, is just a sign of this problem. 

Don't get carried away

Wall Street tends to go to extremes, and it is easy to get caught up in the stories that drive the mood swings.

Right now, gold and silver are being looked at as safe-haven assets, providing protection from geopolitical tensions and inflationary pressures. But, on the inflation side, the companies that mine for precious metals are not immune to the impact.

If you are investing in gold and silver miners, you need to pay attention to their costs. Not only will rising all-in sustaining costs crimp profitability, but they could also increase the pain when gold and silver prices fall in the future. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 1 red flag for precious metals stocks appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• 3 ASX ETFs with market-beating potential over the next 10 years
• Here are the top 10 ASX 200 shares today
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• Brokers name 3 ASX shares to buy right now

Reuben Gregg Brewer has no position in any of the stocks mentioned.  The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The world is going through a significant shift in the way it creates and uses energy, moving away from carbon-based fuels and toward renewables. The transition will take a very long time (think decades), and spending on clean energy will be important for years to come. It is a big opportunity, but does that translate into an investment opportunity? The answer isn't as easy as you might hope.

Value versus price

Benjamin Graham, the man who helped train Warren Buffet, has noted that price is what you pay, and value is what you get. In other words, stock prices don't always align with the value of a company -- in fact, the two often deviate greatly. Graham uses a story to explain this, in which you (as an investor) are partnered with a person called Mr. Market. Mr. Market has wild emotional swings and some days will offer to sell to you cheaply, and on other days, he is willing to buy at premium prices. Your job is to figure out when Mr. Market is selling too cheaply, which is a time to buy from him, and when he is willing to overpay, which is a time to sell.

That's clearly just a way to say buy low and sell high, which can be a very difficult task. However, the biggest problem here is likely to be your own emotions. It is, indeed, very hard to avoid getting caught up in the stories that have Wall Street (Mr. Market) shifting from one mood to the next. Right now, the big-picture story is that carbon fuels are out, and clean energy is in. Thus, many renewable power stocks are doing very well while those producing oil are suffering, relatively speaking. It's not that clean energy isn't going to be important in the future -- it will be. And there's likely to be years of growth ahead for the sector. The question is, how much are you willing to pay for an investment in the sector?

High-priced examples

Over the past five years, Hannon-Armstrong Sustainable Infrastructure (NYSE: HASI) has risen over 180%. The S&P 500 Index is up a little more than 100% over that same span. Hannon-Armstrong is a real estate investment trust (REIT) that provides loans to clean energy providers backed by the long-term contracts they sign. It then passes the majority of the income it generates from the loans it makes to investors in the form of dividends. The stock's dividend yield, at around 2.5%, is near all-time lows. Given that low dividend yield, it would be hard to suggest that Hannon-Armstrong looks like a bargain today. It appears that a lot of good news is being priced into the stock. It is hardly alone.

Clearway Energy (NYSE: CWEN), a large owner of renewable power assets, follows the same trend. Its stock has risen more than 140% over the past five years, and its dividend yield is near historic lows. Shares of SolarEdge Technologies (NASDAQ: SEDG), which makes technology used in solar power systems, are up more than 300% over the past five years. Although it doesn't pay a dividend, its price-to-earnings ratio is over 100 times versus a P/E ratio of around 28 times for the broader market (which is on the high side itself). In other words, SolarEdge looks a bit pricey, too. This is a repeating theme throughout the renewable power space, with some examples being more stunning than others. But the end result is that it is hard to suggest that clean energy stocks are a good value right now because Mr. Market is excited by the long-term prospects of renewable power. Caution is in order when you are looking at a pure-play name in this space, even though the long-term prospects for the sector look good.

HASI data by YCharts

The interesting thing is that you don't have to buy a pure play. For example, NextEra Energy (NYSE: NEE) is also richly priced today, and its yield is near historic lows. However, it's a mixture of a renewable-power business and a boring old utility. Its Florida Power & Light division provides a vital foundation for the spending that's underway in the renewable power space. Should the renewable power growth story fall out of favor for some reason, there's a backstop. If you are considering pure plays, you might want to take a closer look at NextEra, noting that it has increased its dividend annually for more than 25 consecutive years, making it a Dividend Aristocrat. That kind of consistency could be important if investors sour on clean energy.

ENB data by YCharts

There are also names like integrated oil giant TotalEnergies (NYSE: TTE) and North American midstream player Enbridge (NYSE: ENB). Both companies are out of favor today, with negative trailing five-year returns and historically high yields, at least partly because of their ties to carbon energy. But what's interesting is that each of these companies is using the cash generated from the oil sector to build clean energy businesses. With decades to go before oil is phased out, they should have plenty of time to adjust along with the world. For long-term dividend investors, they could be a good way to play the long-term energy transition that's underway without taking on the risk of Wall Street's clean energy zeitgeist.

Be cautious

Is now a good time to buy renewable energy stocks? The answer is, unfortunately, it depends. The prices of pure plays in the space have been bid up. That suggests you need to be careful and perhaps consider something with a little more diversification, like NextEra, which is also expensive but has more than one business to rely on for growth. If you are willing to think outside the box just a little, you might even find that there are ways to invest in the clean-energy transition that are relatively cheap, historically speaking. Sure, you'll have to look at companies tied to dirty carbon fuels, but Mr. Market's dour view of these stocks could make them relative bargains over the long term. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Renewable energy stocks: Is now a good time to buy? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• 3 ASX ETFs with market-beating potential over the next 10 years
• Here are the top 10 ASX 200 shares today
• 2 ASX 200 stocks that could rise 50%
• I was going to buy these ASX tech stocks. Now, I'm not so sure
• Brokers name 3 ASX shares to buy right now

Reuben Gregg Brewer owns shares of Enbridge and TotalEnergies. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The auto industry is clearly shifting toward electricity, with every major automaker pushing hard in the electric vehicle (EV) space. However, it was Tesla (NASDAQ: TSLA) that really got the ball rolling on this front, and investors have clearly noticed.

Here's a trio of reasons why investors might want to put some money to work in Tesla's shares, and one important reason why you might not want to. In fact, if you have profits in the stock, it might even be a good reason to consider locking in at least some of your gains.

1. Tesla is hyper-focused on the clean energy transition

Tesla is, basically, the leading pure-play electric vehicle maker. There are others in the niche, but Tesla has long been the name to beat. And at this point, it is actually turning a profit, with positive earnings in each of the last five quarters. For many years the company basically just bled red ink. However, it has turned an important corner even though it only sold 240,000 or so cars in the third quarter. For reference, Ford (NYSE: F) sold more than four times as many cars in the quarter. So Tesla remains a small fry, but that's just fine if it's making money.

The key difference is that Ford and its peers are largely trying to balance the shift from gasoline to electricity. Tesla doesn't need to do that. In addition to cars, meanwhile, Tesla also has its hand in solar power and battery technology. So there are more avenues for growth as renewable power technology comes to the masses, and it has a very loyal customer base it can sell other products to. So it looks like Tesla could eventually be a much broader play on the clean energy space for those with an ESG bent.

2. Tesla has visionary leadership

Tesla is the brainchild of CEO Elon Musk. He's sometimes compared to Tony Stark from the Iron Man comic series, which is a way to suggest that he's a wealthy genius do-gooder. That characterization is debatable, since he has a team of experts that help him actually make electric cars and the technology behind them -- but what is very clear is that he knows how to promote the company he runs. And what he has created is quite impressive. While he has a habit of pushing the promotional envelope at times, that's been a net positive so far, and there's no reason to expect this to change. In fact, many investors own the stock partly because of Elon Musk. 

3. Tesla has plenty of growth opportunity

A hyper-focus on a growing industry niche with a visionary leader at the helm. There's a lot to like in that description. However, what's really interesting here is that, assuming Tesla can maintain its industry cachet, there's a lot of room for it to gain ground on older competitors that simply don't have the same image. Go back to the sales numbers in point No. 1 that noted Tesla's sales are at less than a quarter of what Ford sold. And Ford is just one of many large global auto companies from which Tesla can steal market share by being cooler and hipper. For example, General Motors (NYSE: GM) sold 1.3 million or so cars in the third quarter. Yes, both are looking to grow their EV businesses, but their dominance of the gasoline-powered vehicle market doesn't necessarily give them an advantage in the EV space, where Tesla's brand is often top of mind. Indeed, the EV playing field is much more level, and Tesla has already proven it can compete effectively with the industry's biggest automakers. 

TSLA Market Cap data by YCharts

Time to lock in some gains?

The big problem with Tesla, and one that investors should really think about closely, is valuation. There is a number of ways to look at this, but the one that is probably the most shocking is market cap. Tesla's market cap is roughly $1.1 trillion, compared to Ford's $77 billion and General Motors' $89 billion. That's shocking because, going back to the sales numbers above, Tesla sold less than a quarter of the cars that Ford or GM sold in the third quarter. How could it possibly be worth more than 10 times as much as each of those two companies? Even with all the opportunities it has for growth in the years ahead, a lot of good news is clearly being priced into Tesla's stock today. 

Investors who have ridden the stock up should probably think about taking some money off the table. In fact, in the past year alone the stock price has doubled. And that includes the recent volatility surrounding Elon Musk's stock sales. This isn't to suggest that you have to sell every share you own, but prudence hints that locking in some gains makes sense. Perhaps you can use the cash to add some diversification to your portfolio, which may be a little extra heavy on Tesla given its huge 1,200% gain since January of 2020.

Act before the situation changes

Nothing lasts forever, and Tesla's massive market cap relative to its peers is likely to reverse at some point. The company may make great EVs, but it hardly owns the EV market. And that will likely lead to an eventual revaluation of the stock. Since it's impossible to predict when that will happen, long-term investors should act now while they still have big stock gains. Locking in some of that profit may sting if the stock keeps going up, but it is the logical move for most investors given the very real risk that Wall Street is pricing in way too much good news. And that remains true even with all of the positive attributes Tesla has.

And if you haven't bought Tesla yet, well, it might be best to leave it on your wish list for now if you have even the slightest value bias. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 3 reasons to buy Tesla stock, and 1 reason to sell appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.