Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) is, perhaps, one of the most famous stocks on Wall Street. The company’s impressive performance over time is clearly one reason, but the other is that it is run by Warren Buffett. If you are considering buying Berkshire Hathaway, it probably pays to step back and consider the company differently than you would just about any other. Here’s why it isn’t too late to buy Berkshire Hathaway stock.
What does Berkshire Hathaway do?
Prior to running Berkshire Hathaway, Warren Buffett operated a private investment group. He took client money and used that cash to invest in other companies. When he disbanded the investment group, he basically shifted his approach to owning Berkshire Hathaway, a public company, and using it to invest in other businesses and companies.
The investments include companies that Berkshire Hathaway owns outright. The best-known example here is probably Geico in the insurance space. However, over the years, the list of owned companies has expanded greatly to include utilities, oil & gas pipelines, a paint maker, manufacturers of various sorts, retailers, and a railroad, among others.
The company’s reach is vast, but Berkshire Hathaway’s approach to managing these entities is very hands-off. Buffett keeps tabs on management but leaves them to do their jobs. In other words, Berkshire Hathaway owns the companies but treats them as if they were stock investments.
Which brings up Berkshire Hathaway’s stock portfolio. The company uses the cash its businesses generate, notably the premiums from its insurance operations, to buy shares of public companies. Some names in the portfolio include Coca-Cola (NYSE: KO), Occidental Petroleum (NYSE: OXY), and American Express (NYSE: AXP).
The list is constantly changing, but some companies have been on the list for a very long time. That fits Buffett’s investment approach of buying good companies at reasonable prices to benefit from their long-term growth opportunities.
When you step back, then, Berkshire Hathaway is really a massive collection of companies sitting under one roof. That sounds a bit like an actively managed mutual fund, which pools investors’ cash so it can buy a portfolio of companies on their behalf. It isn’t a perfect analogy, but it is close enough and probably how most investors should view the company. It also suggests there is no right or wrong time to buy Berkshire Hathaway.
So, why should you own Berkshire Hathaway?
The big reason to own Berkshire Hathaway is to gain access to the investing services of Warren Buffett and the team he has created. After all, he doesn’t really get into the nitty-gritty of running the companies under the Berkshire umbrella. So, he’s effectively just picking the businesses in which to invest.
If you want to invest alongside Warren Buffett, buying Berkshire Hathaway is the best option. Although the stock does rise and fall over time, perfect timing probably shouldn’t be something you think too much about.
That said, there are some caveats to consider before you decide to buy the company. Warren Buffett runs Berkshire Hathaway, but for many years, his partner was Charlie Munger. They worked as a team, in a way, to come to investment decisions. Charlie Munger recently passed away. Although he was the older of the two men, Warren Buffett isn’t that much younger. At some point, sooner rather than later, there will be a change of guard at Berkshire Hathaway.
When a new leader takes the helm, changes may be made in how the company is operated. It is also possible that there won’t be any changes. There’s no way to tell right now. Given Buffett’s hands-off approach, the corporate culture he has created may not survive without him.
So, while trying to time the perfect entry point into Berkshire Hathaway probably isn’t worth the effort because of how it is operated, you need to make sure it remains the same company should Buffett step down for any reason.
Berkshire Hathaway is unique
Berkshire Hathaway’s stock performance is nothing short of incredible, as it has handily beat the S&P 500 Index over the long term. But it is not your typical company. It has a unique operating approach that suggests it should be looked at more like a mutual fund than a normal corporation.
That means there’s probably no right or wrong time to buy the stock, but Charlie Munger’s death brings up what may be the biggest risk. Could Berkshire Hathaway change if Warren Buffett is no longer at the helm? This shouldn’t stop investors from buying, but it is something to monitor closely when the time comes.
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American Express is an advertising partner of The Ascent, a Motley Fool company. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Is It Too Late to Buy Berkshire Hathaway Stock? was originally published by The Motley Fool