If you have $1,000 to invest, you might consider buying one of the most unusual companies: Berkshire Hathaway.
If you have $1,000 to invest, you can't buy A shares. Berkshire Hathaway (BRK.A -2.04%) (BRK.B -1.96%)trading for over $600,000 a share. But there are also Class B shares currently trading around $400. Believe it or not, it might be worth buying a couple of shares of Berkshire Hathaway Class B stock. Here's why: Probably not for the reasons you'd expect.
Berkshire Hathaway isn't what you think it is
The obvious answer to the question “What is Berkshire Hathaway?” would be “a company.” But that's not the whole story. Berkshire Hathaway used to be a textile manufacturing company, but it was forced to close down the business after it was eaten up by overseas competitors. What this company actually became is an investment vehicle for Warren Buffett.
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Buffett's long-term investment success earned him the nickname Oracle of Omaha, the city where Buffett lives. To greatly simplify his investment process, Buffett prefers to buy well-run companies at a fair (or low) price. He then gives the management of those companies to their leaders and holds their stock for the long term. Notably, he only gets involved in the management of subsidiaries when there is a good reason to do so, otherwise he leaves the job to good managers.
Not every investment is a success, but Buffett has had more successes than failures. And many of those successes have been home runs. To put that into numbers, since 2000, Berkshire Hathaway's total return (including dividend reinvestment) is 1,010%, compared to Berkshire Hathaway's total return of 461%. S&P 500 Index. Berkshire Hathaway doesn't pay a dividend, but the S&P 500 does, so total return is the fairest way to compare the two. And it's a clear indication of Buffett's investing ability.
BRK.A Total Return Levels Data by YCharts
Why buy Berkshire Hathaway?
You might think the reason you buy Berkshire Hathaway is because of the stock's success, but that's not actually the case. The reason you want to buy the stock is because you believe in the investment approach that Buffett follows. While past performance doesn't guarantee future results, a strategy that has been successful for a long time seems very likely to produce solid profits in the future as well.
But here's another important fact: Berkshire Hathaway isn't a one-trick pony that operates in just one industry. It's one of the most diversified businesses you can own. To underscore that point, the company operates a large insurance business, a major railroad line, several utilities, and a midstream energy business. These are investments big enough to break out. It also owns retail assets, real estate sales businesses, travel centers, metal parts manufacturers, chemical companies, farm equipment manufacturers, home builders, carpet companies, insulation manufacturers, and paint manufacturers. And this isn't an exhaustive list.
On top of that, Berkshire Hathaway has a portfolio of stocks in which it invests but doesn't own the entire company. The list ranges from beverages to financials to energy, and they usually get more attention than the investments the company owns in full. The real key here is that buying Berkshire Hathaway is the same as investing with Buffett, and you get access to his investment approach for a fraction of the money.
There is no such thing as a perfect investment
There is no free lunch on Wall Street, so there are some issues to consider before buying. The biggest of these is that Buffett is quite old and will likely be finishing his term as CEO of Berkshire Hathaway relatively soon. We expect Buffett will be heavily involved in developing his successor, but we will have to keep a close eye on what happens after he steps down. As long as Berkshire Hathaway continues to use his fundamental investment strategy, owning Berkshire Hathaway will remain a worthwhile choice, unlike any other stock you could buy for $1,000 today.
