In the wake of out-of-character calls by CEO Warren Buffett, some have been asking whether Berkshire Hathaway is still a good investment.
Berkshire Hathaway (NYSE: BRK.A) is a multinational conglomerate holding corporation with investments in a variety of sectors, including positions in such major brands as Coca-Cola (NYSE: KO) and American Express (NYSE: AXP). Based in Omaha, Nebraska, the company has been guided by Warren Buffett’s management philosophy since 1962, before which it was a textile manufacturing firm.
Over the six decades that Buffett has been at the helm, it has grown to employ nearly four hundred thousand people and grossed $81.4 billion in 2019. As it proudly displays on the opening page of its annual reports, investing with Berkshire represented a 2,744,062% gain in the period of 1964-2019, compared with 19,784% with the S&P 500 (NYSEARCA: VOO). So far so good; but all things must come to an end, and many commentators have pointed to Buffett’s advanced age as a reason to doubt the future of Berkshire Hathaway. So, is now the time to invest in Berkshire Hathaway?
The bull case for Berkshire Hathaway
Here are some salient points that make Berkshire Hathaway a safe bet:
- The company is still led by the visionary investor Warren Buffett, perhaps one of the most successful investors of all time.
- It has seen great success in 2020 with its Apple (NYSE: APPL) investment, reaping a gain of $40 billion since its March low.
- Berkshire has a very diversified portfolio of value stocks, very important in a crisis.
- Massive cash reserves — some $137 billion at its disposal in cash and equivalents according to data from its Q1 report earlier this year.
The crucial argument when it comes to Berkshire stock is always going to be the long-term view. it has a proven track record — investing in Berkshire is like investing in the market itself, which is always up on a ten-year basis. A little like buying into the S&P 500, only smarter.
The bear case for Berkshire Hathaway
It is true, though, that these are unprecedented times and it seemed uncharacteristic of Buffett when he decided to dump all airline stocks — which included positions in the ‘big 4’, United (NYSE: UAL), American (NYSE: AAL), Southwest (NASDAQ: LUV), and Delta Airlines (NYSE: DAL). This move made shockwaves precisely because Buffett is seen as such a stable, reliable character and he previously had gone on record as saying he wouldn’t sell off his airline stocks.
Likewise, the fact that Berkshire Hathaway is sitting on its vast cash reserves is causing many to question whether they lack the dynamism of less risk-averse investors. Berkshire bought $10 billion in natural gas infrastructure assets from Dominion Energy (NYSE: D), but this represents less than 10% of its total cash reserves, leading some to say Warren Buffett has lost his touch, and hence the company has lost its direction. Again, this tends to come back to the fact that Buffett himself is 89 years old.
So, should I buy Berkshire Hathaway stock?
These caveats notwithstanding, my money is still on Berkshire. Even when Buffett eventually passes the torch to a successor, his legacy will continue to guide the direction of the company for years to come. It may not be the investment to make if you’re looking to get rich quick in a crisis, but as a stable long-term investment, it’s like investing in the fundamentals of the economy.
Quickfire Round
Does Berkshire Hathaway pay dividends?
Berkshire Hathaway famously does not pay investors dividends.
What did Berkshire Hathaway buy recently?
The most recent acquisition of Berkshire Hathaway as the $10 billion purchase of Dominion Energy’s natural gas assets.
Who owns the most shares of Berkshire Hathaway?
Warren Buffett owns 31.4% of shares in the company, making him the biggest single shareholder.
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