Warren Buffett has built Berkshire Hathaway (NYSE:BRK.B, NYSE:BRK.A) into a market legend by taking a cash heavy insurance business and molding BRK.A (about $219,000 a share) and BRK.B (about $146 a share) into his own personal hedge fund.
Technically BRK.B is a holding company comprising various units including utilities, railroads and energy, but it is really a manifestation of Buffett’s value investing philosophy.
Buffett and BRK.B Stock: Separate From the Crowd
Buffett doesn’t just buy shares of companies, he buys companies. He gets a controlling interest in the companies he buys so he can maximize their value, generally looking for infrastructure and real asset plays, like utilities, real estate or publishing companies.
He is not the new breed of Wall Street that makes money using algorithms or derivatives. The businesses he invests in are undervalued or in a sector that he sees ascending. He never pays a lot; he does his homework and knows what he needs to do and what he needs to see once he is inside.
This also means Buffett has trained a number of highly skilled people that find the deals and run the organizations — or at least their transitions.
What’s more Buffett is a long-term investor. He may buy a huge amount of bonds from a company as opposed to a controlling interest in the stock. And some of that is simply to balance out BRK.B’s holding a bit. But either way, when he buys, he commits. And he has staying power.
Now, not every deal in the works is a great one. Some fizzle. Buffett moves on. He’s able to do so because he separates his ego from his investments.
And the thing is, his track record speaks for itself. He has outperformed the S&P 500 Index every year for the past decade at least, averaging 9% annual returns versus the S&P 500’s 6.8% annual return, according to Arie Goren at AmigoBulls.com.
Business Insider actually goes back to the mid-1960s in its performance evaluation. It concluded that the only way to compare the two and keep them on the same graph was to use a logarithmic scale. Because its only on that level that you can see the immense outperformance of Berkshire Hathaway to the broader markets.
What’s more, BRK.B doesn’t pay a dividend. That means he has found a way to buy companies that will grow faster than the market for many years, yet don’t have a great deal of downside risk.
Bottom Line on BRK.B Stock
There is certainly much about Buffett and BRK.B that is impressive, especially the stunning long-term performance.
But there are times when BRK.B becomes a great value in and of itself. And this is one of those times.
It’s up 9% year-to-date, but that has been fairly uneven growth. The real story is that as instability rises in the European Union and Britain, and as Asia continues to plod along, Berkshire Hathaway Inc. becomes a very attractive safe haven for institutional money. That means this is the time to get in, before the stampeding herd closes in.
And once you’re in, you can rest easy knowing that you’re in one of the best performing stocks in the history of the stock market.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
