Warren Buffett turned 90 this year. Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) vice chairman Charlie Munger is even older. Two older guys with two classes of stock. BRK.B stock is the more affordable of the two, at $291.28 a share versus $438,160.
Father Time is undefeated. Everything fades, everything ends. This may be why you’re not hearing much about Buffett or Berkshire these days. The so-called Oracle of Omaha’s quarterly 13F, a review of his investments, expected later this month, still draws headlines from financial writers. But the “bros” and fast money boys don’t care anymore.
They should. That’s because the lessons of Warren Buffett, which are his real legacy, are timeless. They’re lessons every investor should learn.
The Lesson of Time
Buffett doesn’t churn his portfolio the way headline writers pretend he does. He adjusts, not just between companies but sectors.
Until the 21st century, Buffett famously ignored technology because he didn’t understand it. This year one-quarter of his portfolio is in pure tech stocks. Apple (NASDAQ:AAPL), which also classifies as consumer electronics, represented 40% of his portfolio in March. Tech has been slowly displacing consumer staples, now just 13% of the total but over one-third just five years ago.
What abides with Buffett are finance stocks, like Bank of America (NYSE:BAC), his second-largest holding, and American Express (NYSE:AXP). In some quarters, this has represented nearly half his holdings. In the most recent report, it was less than one-third.
When Buffett gets out of something, as with Wells Fargo (NYSE:WFC) recently, it’s big news. But it doesn’t drive the market. That bank’s stock is up 28.7% since April 1 while the broader sector has only gained 8.9%, as reflected in the Invesco KBW Bank ETF (NASDAQ:KBWB). (And, in case you were wondering, BRK.B stock is up 12.8% in that time span.)
The Real Berkshire
The portfolio, though, is not the real Berkshire Hathaway. It’s not what investors should be focused on. The real Berkshire is insurance.
Berkshire not only owns GEICO, a consumer insurer that has become wildly profitable thanks to technology, but a host of property and re-insurance businesses. These are led by General Re, a reinsurer with $14 billion in capital and writing $6 billion in premiums, and National Indemnity. Berkshire also owns MedPro Group, selling liability insurance to doctors and facilities. It owns two huge underwriters, Applied and Gateway. If you’re in business, chances are excellent you’re insured by a Berkshire unit.
Insurance is applied mathematics. Each policy is a bet on whether something bad will happen. If something does, the insurer pays. But usually nothing does, meaning the insurer wins. It’s the application of chance across a wide range of risks that makes business possible. Without it, even your biggest investments could blow up on a single disaster.
This makes Berkshire Hathaway the most systemically important company in the world. That’s not hyperbole. Managing risk is vital, no one manages as much risk, thus no company is as vital as Berkshire Hathaway.
BRK Stock After Buffett
Greg Abel, who runs all of Berkshire’s non-insurance businesses, was named Buffett’s successor in May. But Ajit Jain, who runs the insurance operations, may be more important to the future of your BRK stock investment. Why Abel and not Jain? Jain, a native of India who joined Berkshire in 1986, is 70. Abel is 59.
If Berkshire is broken up after Buffett leaves, it’s Abel who will do it. Jain’s operations give him a huge financial buffer in that. He can take his time.
Time is the ultimate lesson of Warren Buffett.
Buy good companies, hold them until they mature or prove you wrong. Don’t worry about today’s markets. Look ahead.
Build a base of things you know will grow, as Buffett did with banks and insurance companies. Then play around a bit, with tech or consumer stocks. Most important, know when to sell. This is something Redditors who think everything will go “to the Moon” forget.
Value, in other words, doesn’t lie with what the market is doing today. It lies in what the people you invest in do tomorrow. Value and values aren’t separate. That’s the investment legacy of Warren Buffett.
On the date of publication, Dana Blankenhorn held long positions in AAPL and BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at email@example.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.