Berkshire Hathaway (BRK.B) Stock: A Great Buy for All Seasons

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If you’ve been reading my column recently, you know I’ve been struggling to identify the value of some very large and widely held stocks. Not everything is as rosy as it may appear at first.

Warren Buffett

The good news is that things do look rosy for Berkshire Hathaway Inc. (BRK.A, BRK.B), although I can still find a few things to fuss over.

Another takeaway from my columns, if you’ve read them over the past few years, is that I’m a big advocate of holding a broadly diversified long-term portfolio. Within that portfolio, if you are able to further diversify, so much the better. Thus, holding exchange-traded fund, closed-end funds and equivalents can only help.

Diversification is actually the most effective defense against market declines. While it may limit some upside, the key is to understand upside versus risk-adjusted upside. The key is to take reasonable risks consistent with your risk tolerance and earn a corresponding return. Diversification may not lead to explosive results (although they certainly can), but they will protect you when stocks fall.

Why harp on diversification? Because Berkshire Hathaway is itself a massively diversified, long-term portfolio. That’s Warren Buffett’s way of doing things. It always has been. He buys great companies selling at a value, keeps management in place and holds most of these positions forever.

Private companies stay inside BRK.B. Public companies do get dumped from time to time.

Berkshire buys companies that have predictable businesses. That usually means brand loyalty. So even if the economy tanks, people are still going to visit See’s Candies, and they will still need Geico insurance.

Yet building this personalized mutual fund isn’t the only thing to love about Berkshire Hathaway. The other thing to love is the management and its philosophy. It has been consistent for decades. You know exactly what you’re getting with BRK.B. You know that fraud just isn’t going to happen. You know that if Berkshire stock goes down, it is for a truly good reason involving the business or the market as a whole.

Not Enough Downsides to Say No to Berkshire Hathaway

Is there anything at all to steer one away from Berkshire Hathaway stock?

Because so much of Berkshire Hathaway is tied up in Buffett and Charlie Munger, we ask what happens when they move on. The hope is promotion from within. Then again, Apple Inc.’s (AAPL) Tim Cook is no Steve Jobs. That’s a future concern, but that future is closing in.

Berkshire Hathaway is heavily dependent on insurance, with a little less than a third of the company’s operating profits coming from that business. But it has survived all the catastrophes thus far and likely always will survive others … unless one comes along that devastates it.

I could argue that Berkshire has been doing too many deals with private equity shops. It’s not a bad thing, but interests aren’t always aligned in these circumstances.

I could also argue that BRK.B is expensive, trading just 5% to 6% below its all time high. It’s difficult to value the company because it’s a conglomerate, so traditional metrics don’t even work. If you’re going to buy in, then, you are pretty much doing it on faith.

Still, when you look at Berkshire Hathaway and its long-term success, its hard to just say no.

I think you can buy the stock at these levels if you plan to stay with it even after Warren goes to money heaven.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/berkshire-hathaway-stock-brkb/.

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