When Warren Buffett took over as the principal owner of a small Massachusetts-based textile company called Berkshire Hathaway (BRK.A 0.93%) (BRK.B) In 1964, it was trading at about $11.40 per share. After nearly 60 years, the group has become one of the 10 largest publicly listed companies in the world, with a market capitalization of about $769 billion. Its Class A shares now trade for more than $534,000 per share, while its Class B shares are a more reasonable $350 per share.
Buffett will turn 93 on Aug. 30, and he looks like he’s still going strong as chairman and CEO of Berkshire Hathaway. Can investors still count on him – and his team – to deliver services now and for the next generation?
Berkshire retains a huge legacy
This huge conglomerate has three main parts to its business. First, it is the holding company for a portfolio of about 65 subsidiaries, most of which it wholly owns, but a few with majority shareholders. Some of the more well known are Dairy Queen, Jordan Furnishings, Benjamin Moore, and Duracell. Secondly, it owns a number of insurance companies including GEICO and Berkshire Hathaway Specialty Insurance.
For the third part, it’s taking the offering from its insurance business and investing that in a portfolio of currently about 50 stocks worth about $380 billion. apple It is the largest position, accounting for about 46% of the value of the portfolio, followed by American bank by 9% and American Express by 7%.
This model has allowed Berkshire Hathaway to be one of the most stable and stable stocks on the market. Since May 1996, when the group floated its Class B shares, the average annualized return per share has been 10.4% as of July 20. Standard & Poor’s 500, In comparison, it generated a total annual return of about 9.5%.
Data by YCharts.
But when you look beyond yield, you see a business that is designed to perform well in different market conditions. Specifically, it tends to do well when the market is down, as steady results from the insurance business and its variety of subsidiaries usually offset the share price losses in the stock portfolio. For example, last year Berkshire Hathaway ended the year up 3%, while the S&P 500 fell 19% and NASDAQ Composite The index fell 32%. In the past 10 years, Berkshire Hathaway stock has had only one negative year — 2015, when it fell 12%.
Should you buy Berkshire stock?
The big question for long-term investors is whether Berkshire Hathaway thrives when the business is handed over to the next generation of leaders. Buffett will turn 93 in August, and Vice President Charlie Munger, who has been his right-hand man for decades, will turn 100 on January 1. While Buffett has not indicated when he will step down, a succession plan has been in place for years. Longtime Vice Chairman Greg Appel will take over as CEO, and Ajit Jain, the current vice president who now runs the insurance units, is slated to be his right-hand man.
These weren’t decisions Buffett made lightly, and he has said he has complete confidence in the next generation of leaders to preserve Berkshire Hathaway’s culture and execute on his strategic vision. I don’t doubt it, and although there may be some volatility in the market in the early days of the transformation, just because of the uncertainty of investors, the company should not miss an opportunity under the new leaders. Then again, Buffett Just 93 – He could go until he’s 100 for all we know.
Buying Berkshire Hathaway stock, with its diverse holdings and investments, is kind of like putting money into an exchange-traded fund or mutual fund managed by one of the largest investors in the world.
On top of that, Buffett has been hoarding cash. The conglomerate giant now has about $131 billion on the sidelines, and you can bet he and his team are carefully researching how best to use that. It should definitely be on your radar as a potential purchase.
Bank of America is an advertising partner of The Ascent, The Motley Fool. American Express is an advertising partner of The Ascent, The Motley Fool Company. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has and recommends positions at Apple, Bank of America, and Berkshire Hathaway. The Motley Fool recommends chevrons. The Motley Fool has a disclosure policy.
