Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) CEO and legendary investor Warren Buffett is known for buying stocks during market downturns. Buffett and Berkshire Hathaway stock investors made a killing off of his timely investments during the financial crisis in 2008.
Now, I’m seeing Buffett questions popping up all over the place. Do you think Buffett is buying? What do you think he’s buying? What stocks should I be buying to invest like Buffett?
The answers to these three questions are much easier than they may seem: 1. Yes, Buffett is always buying. 2. Nobody will know exactly what stocks he is buying until mid-May. 3. To invest like Buffett, there’s only one stock someone needs to buy.
Buy Berkshire Hathaway Stock
I’m a huge fan of Buffett’s philosophy and investing style. But as I’ve said before, don’t overthink things when it comes to investing like Buffett. Just buy Berkshire Hathaway stock!
Berkshire has a massive cash pile. Buffett has even drawn criticism for not investing more of it in recent years. But, there’s no doubt in my mind he has been buying the coronavirus from China dip.
We can speculate about what he’s been buying. I bet he has been adding to his Apple (NASDAQ:AAPL) position. Apple is one of Berkshire’s largest stock holdings, and Buffett said last year he would love to buy more Apple if the price dropped.
Furthermore, you can also look around the market and guess on certain stocks that might interest Buffett based on his extremely consistent track record. Buffett likes stocks with competitive advantages that have strong cash flows, low debt and strong brands. A company like Pfizer (NYSE:PFE) might fit this description, but so would dozens of other stocks. Overall, there’s no way of predicting which ones will catch Buffett’s eye.
Unfortunately, nobody will know for sure what Buffett is buying today until mid-May when 13F filings are made public. By then, the S&P 500 could be back at all-time highs or another 1,000 points lower. Nearly two months is a lifetime in a market like this.
Investing In Buffett
Fortunately, you don’t have to invest like Buffett. You can simply invest in Buffett himself by just buying Berkshire Hathaway stock. As I said alreayd, you won’t know exactly what Buffett’s been buying for another two months. But if you buy Berkshire today, you will retroactively have bought everything Buffett is buying in real time.
In a sense, it feels like cheating. By buying Berkshire Hathaway stock, you are essentially betting on Buffett. And that’s akin to betting on a race horse that has won every race for decades. In addition, the horse’s latest times have been just as fast as his times were 30 years ago.
Another good thing about Buffett’s investment philosophy is that it’s geared toward the extreme long-term. Buffett is no spring chicken at age 89. But he famously said he’d never buy a stock he wouldn’t be comfortable holding for 10 years or more. In other worlds, even if Buffett doesn’t make it much longer, Berkshire’s portfolio won’t start falling apart at the seams just because he’s not at the helm.
How Much Is Berkshire Stock Worth?
I started buying Berkshire Hathaway stock last week at around $168. Former hedge fund manager Whitney Tilson recently updated his valuation estimate for Berkshire’s Class-A shares.
As of the end of 2019, Berkshire had $252,000 in investments per BRK.A share. It also had $14,464 per share in pretax earnings. Tilson applied a post-tax price-earnings multiple of 15 to that second number and then added it to the value of the equity holdings to reach an intrinsic value of $426,000 per BRK.A share.
Tilson recently trimmed the value of Berkshire’s investment holdings by 25% to compensate for the severe market downturn. His updated intrinsic value for BRK.A stock is $339,000 per share. To translate that to Berkshire’s B-Class shares, just divide by 1,500 to get $226. That value implies 24.5% upside from current levels.
“I’m being even more conservative because I’m not factoring in the value Warren Buffett will likely create as he puts his $128 billion cash hoard to work amidst this chaos: buying back his own stock in size, buying other stocks, and negotiating deals with desperate companies,” Tilson says.
Playing Defense With Berkshire
Tilson also believes Berkshire is the ultimate defensive play in an unpredictable market.
“It’s an incredible collection of high-quality businesses… it’s run by the greatest investor of all time… and it has the ultimate, Fort Knox-like balance sheet: $128 billion in cash and short-term investments, $19 billion in bonds, and roughly $200 billion in liquid, blue-chip stocks,” he said.
I agree. And that’s why I’ve been buying and will keep buying Berkshire Hathaway stock on any new market lows in the near future.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market. As of this writing, Wayne Duggan was long BRK.B stock.
