Most investors know that Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) is one of the best performing investments of all time. The key to success is consistent investing and sticking with it for years or even decades.
But Berkshire’s run is far from over. And right now, there are two exciting reasons why almost every investor should consider getting into this legendary stock.
1. Berkshire has a permanent competitive advantage
Warren Buffett took over Berkshire Hathaway in 1965. During the company’s first few decades of operation, its value soared. For example, in the 1980s, Berkshire shares rose in value by at least 30% most years, with an annual return of up to 90%.
Although Berkshire’s biggest growth days are behind it, the stock has still performed quite well over the decades. For example, over the past thirty years, Berkshire’s total returns have significantly outperformed those of the S&P500 index. Even over the past three years, Berkshire shares are up about 60%, besting the S&P 500’s return of just 38% over the same period.
BRK. B Total return level data per YCharts
What has allowed Berkshire stock to beat the market time and time again even as its valuation has soared to nearly $1 trillion? The biggest key has been Buffett’s investing prowess. Buffett and his investment team have repeatedly successfully invested shareholder capital, either by buying shares of a publicly traded company, acquiring a private company, or simply buying back Berkshire’s own shares.
But there’s another advantage Berkshire has that few other investments offer: the advantage of permanent capital. That is, Berkshire has a pool of capital it can invest regardless of market conditions. For example, during the 2008 financial crisis, the country was able to spend billions of dollars on blue chip companies with simple discounts because so many other competing sources of capital had already dried up.
This permanent capital is generated by Berkshire’s insurance business – an industry that doesn’t necessarily see demand plummet during recessions or bear markets. Although underwriting profits may not be very high during certain market cycles, insurers provide a steady flow of investable money because premiums are paid in advance and claims are paid in arrears. Many other investment vehicles have copied this business model in recent years, but it has remained a sustainable competitive advantage for Berkshire, especially when combined with Buffett’s investment acumen.
2. Berkshire makes saving money fun
Transferring more money that can be used for lifestyle expenses into your investment account isn’t always fun, but it is a wise decision for the long term. Investing in Berkshire can remove some of the friction that comes with increasing your savings rate.
First, every time you buy more Berkshire stock, you know you’re betting on one of the most successful investment vehicles in history. Putting more money to work in the market is significantly more fun when you can be confident that these investments will match or even exceed total market returns.
Second, by purchasing shares of Berkshire, you become a partner in one of America’s most iconic companies. You literally become an investment partner to Buffett and the rest of this team. When they make a move, you do too. Except in this case, they do all the basic work for you, while you sit back and enjoy life. If they see opportunity in a particular sector or region of the world, Buffett and company are authorized to invest your money where it has the best chance to grow. While with other investments your capital may be limited to a certain sector or region.
In short: investing in Berkshire can be more fun than any other investment vehicle. Who wouldn’t want to be an investment partner with Warren Buffett? And every trick you can use to increase your savings rate is almost as important as choosing the right investment. With Berkshire you can achieve both, making it an attractive choice for almost any investor.
Should You Invest $1,000 in Berkshire Hathaway Right Now?
Consider the following before buying Berkshire Hathaway stock:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Berkshire Hathaway wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $826,069!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns October 14, 2024
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
2 Reasons to Buy Berkshire Hathaway Stock Like There’s No Tomorrow was originally published by The Motley Fool
