Berkshire Buy & Hold Forever
Table of Contents :
Introduction
What do they do.
Setting Apart.
Why Expensive?
Secret Sauce.
A Buy ?
My Perspective.
Disclaimer.
Looming US recession is forcing investors to turn to defensive value stocks, who better than Warren Buffett and Berkshire.
I believe Berkshire is a buy and hold forever stock if you believe in power of long-term investing, so let’s talk more about this.
Introduction :
Berkshire Hathaway is a holding company based in the US headed by, Warren Buffett and his partner Charlie Munger since 1965.
Headquartered at Omaha Nebraska, it owns more than 60 companies most of them outright, while commanding a market cap of over $700 billion.
Its Class A shares trade at over $480,000 per share, making them the most expensive stock, whereas Class B shares trade around $320 on the day of recording.
Berkshire has a long term investment horizon for good assets, hence respected and admired in the investing world.
What do they do
Berkshire as a holding company owns significant stakes in several well-known companies in insurance, utilities manufacturing retail transportation etc
Some of them include GEICO Duracell Dairy Queen, BNSF Railway Apple Coca-Cola and American Express to name a few.
It’s primary source of revenue is through its subsidiary’s operations and investments, whereas its investment portfolio is managed by Warren Buffett and his team.
Apple is their largest holding with over 907 million shares if it, that are worth over $120 billion.
They are well-known for focusing on value investing with long-term horizon, while its unique holding company structure allows them significant flexibility in managing its assets, which resulted in huge returns for shareholders.
Setting Apart
Legendary investor and CEO of Berkshire Hathaway Warren Buffett is widely regarded as one of the greatest investors of all time.
He believes in buying high-quality companies with a long-term perspective, and people look upto him during times of economic uncertainty for guidance.
It’s strong balance sheet with huge cash reserves allows them to act fast during a downturn, if opportunities arise.
I believe they are well positioned to weather any potential recession, as they have capability to generate significant returns over long term.
Nobody has a crystal ball who can predict future, but I would definitely have this stock in my portfolio given its inherent strengths.
Why Expensive?
Class A shares of Berkshire trade at $480,000, thus is one of the most expensive stocks in the world.
Reasons are limited supply, high demand because of impressive performance over decades, and finally they have never been split since IPO.
Being well managed with a strong track record of investments and acquisitions, therefore investors are willing to pay a premium for the stock.
In nutshell, owning it’s stock is often considered as participating in Berkshire and Warren’s long term growth story of wealth creation.
It's class B shares introduced in 1996, trades at about $320 is more affordable for individual investors, but still commands a premium.
Secret Sauce
Warren’s investment approach is long term which can be decades, so patience alongside value investing plays an important part.
As bull cycles are longer than recessionary times, so his approach gives him an edge.
Berkshire owns more than 30 dividend paying securities, which is around $6 billion in dividends over the next 12 months alone.
Over $100 billion in cash or equivalents in hand, allows him to buy high-quality assets often at a discount during cyclical downtrend
In the last five years, they bought back $60 billion of their own stock which does two things, first betting in his own ability to compound money, and second improving Berkshire’s EPS.
A Buy ?
I believe Berkshire Hathaway is well diversified with lower overall risk profile, that has a better risk-adjusted returns in financial-services sector.
It also provides a solid downside protection during market selloffs, because it’s cash reserves gives them options to buy good assets during tough times.
They have impressed investors over the years with their ability to provide better returns, than even S&P500 index.
I would put fair value of it’s Class A shares at about $550,000, whereas Class B shares at about $360, so I would buy below this price range but you do your own risk assessment.
My Perspective
Berkshire has a multi decade successful track record of generating returns for its investors, where Warren still remains actively involved in investment decisions.
As an example : It’s Class A share was trading at about $970 in 1983, is now trading close to half a million dollars.
It's huge portfolio of dividend paying securities, long-term investments and a huge cash position, gives ample confidence to me about long-term growth prospects of the company.
Disclaimer :
As a disclaimer, I’m not a financial advisor please consult one before investing based on your personal financial situation.