Some years back, billionaire Warren Buffett of Berkshire Hathaway (NYSE:BRK.B) entertained the notion that he was related to tropical-rock singer Jimmy Buffett. Even without an Ancestry.com verdict, this might make sense to owners of Berkshire Hathaway stock. Buffett the artist is famous for “Margaritaville”; Buffett the investor for his annual shareholders meeting nicknamed “Berkyville.” Jimmy sometimes plays ukulele in concert; Warren plays one in his presentations.
And perhaps most importantly – as though this comparison exercise has yielded any investment secrets so far – both have careers built on mellowness. For while Jimmy found fame searching for that lost shaker of salt, Warren found fortune searching for value investments worth their salt. They hardly get the blood pumping for go-go adrenaline junkies.
In fact, Berkshire plays the dull role of financial services provider, not that its profits induce yawns. Up nearly 50% in five years, Berkshire Hathaway stock cranks out gains in steady-rolling fashion, its climb continuous until the novel coronavirus infected all of Wall Street in the first quarter of 2020. Now returning to form, Berkshire has the makings of a contender in 2021. Here’s what might be next for the Oracle of Omaha’s baby.
Berkshire Hathaway Stock and a Rock Solid Comeback
Remarkably, Berkshire Hathaway stock is down just 5.5% year over year, a testament to its resilience after a coronavirus mini-crash. Again, I want to emphasize how that month-long living hell between mid-February and mid-March spared almost no investment sector. Berkshire shed close to 30% but remarkably has gained almost all of it back.
What do the analysts think? It’s overweight, though not by much. Two label it a “buy,” one “overweight” and three a “hold.” But it’s worth noting that no one is recommending to sell and the average price target stands at $231.04. If it hits that target, Berkshire would chalk up a gain of 15%. While that’s not exactly running with the bulls, you could definitely call it a nice, steady gait.
Not that BRK.B has been invincible. The last four quarters have produced something of a bouncing ball earnings-wise. The fourth quarter of 2019 missed expectations by a mile – $1.81 per share versus the projected $2.39 – and the following earnings report was a miss as well. Then came a solid beat in this year’s second quarter, with the next earnings report expected Nov. 6.
Building on Wisdom
Like many of Warren Buffett’s acolytes. I love Berkshire Hathaway stock because the man behind it espouses sound investment principles that border on timeless. He built his fortune based on the theories of Benjamin Graham as recorded in a classic book from 1949, “The Intelligent Investor.”
Speaking of timeless, Buffett and his billionaire partner Charlie Munger are both in their 90s. They have built their riches and their rich lives on a formula so simple that some chart wonks would scoff at it: Invest in quality companies at reasonable prices. Berkshire itself embodies both sides of that coin.
In any portfolio, Berkshire Hathaway stock suits itself to a niche that’s higher risk than bonds, but safer than many investments. An in an era where hot sectors such as electric vehicles and ride-hailing services remain unproven and perilous, no one’s going to say that about BRK.B. Not by a superduper long shot.
Here’s Why Berkshire Is a Buy
I know, I know: The young bucks who play the market via Robinhood often trade on guts and bravado. Make no mistake, you can make a profit that way, sometimes a killing. But the temptations to gamble and follow the lemmings are also formidable forces.
Meanwhile, investment theories rank right up there with diets; many so-called experts have their theories and a great many trade on hype as opposed to a track record.
Why give in to the forces of greed, ignorance and Vegas mentality? Buying Berkshire Hathaway stock is smart because the people behind it are smart and have seen more investment success over a longer span of years than you and I ever will. If you’re gonna follow in someone’s footsteps, why not Warren Buffett’s? Though, if you hope to make your fortune singing to potbellied men in hideous tropical shirts, maybe Jimmy is the better role model.
On the date of publication, Lou Carlozo held a long position in BRK.B.
