Relatively few investors will buy Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) class A shares as 2024 comes to a close. There’s a good reason why: The cost of one Class A share of Berkshire Hathaway is more than $715,000.
But you don’t even need $500 to get your hands on a Berkshire Hathaway Class B share. And it can be an exceptionally smart move if you’re a long-term investor. Here are three reasons to buy Berkshire Hathaway stock like there’s no tomorrow.
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Normally I subscribe to the idea of ’betting on the jockey and not on the horse’. However, I’m happy to admit that Warren Buffett, chairman and CEO of Berkshire Hathaway, is no ordinary jockey.
It’s no exaggeration to say that Buffett is one of the greatest investors of all time. Consider that between 1964, when he took control of Berkshire, and 2023, the stock posted a total gain of 4,384,748%. That’s more than 140 times the earnings of the S&P500 during the period. This outperformance has continued into 2024, with Berkshire once again rising more strongly than the S&P.
As impressive as Buffett’s past performance has been, his overall philosophy is an even more important factor behind Berkshire’s long-term success. Buffett’s annual letters to Berkshire Hathaway shareholders are a masterclass in how to think about managing a business and investing in companies.
There will inevitably come a sad day when Buffett will no longer be around to lead Berkshire Hathaway. However, his influence on the company will continue for a long time – and I believe this will help ensure continued success.
The good news with Berkshire Hathaway is that you don’t just have to bet on the jockey; the horse is also really good. In Berkshire’s case, you essentially get a stable of horses.
Berkshire Hathaway itself includes nearly 70 subsidiaries. Some are major contributors to the conglomerate’s overall revenue, such as railroad company BNSF, insurer Geico and energy company Berkshire Hathaway Energy. Others are smaller fish in the pond, including Helzberg Diamonds and See’s Candies. But they all have at least one thing in common: they are built for the long term.
When you buy Berkshire stock, you also become an investor in nearly 40 other publicly traded companies. Most of the conglomerate’s equity holdings are also exceptional companies, especially top holdings such as Apple, American Express, Bank of AmericaAnd The Coca-Cola Company.
I rarely mention a company’s cash holdings as a primary reason to buy shares. But Berkshire Hathaway is a unique case. It has as much as $325.2 billion in cash, cash equivalents and short-term investments in U.S. Treasuries. That is the largest cash position in Berkshire’s history.
BRK.B Cash and Short-Term Investments (Quarterly) data by YCharts
Why is Berkshire’s large stockpile of cash a reason to buy the stock? It gives Buffett and his team plenty of resources to get to work if and when the stock market pulls back enough to create prime buying opportunities.
Buffett’s strategy is to only invest if valuations are attractive in relation to earnings growth over at least five years. This approach has been critical for Berkshire in achieving long-term market-beating returns. I expect that Buffett and his investment managers will use the massive amount of cash to ultimately make smart investments that will help Berkshire continue to beat the market for years to come.
There’s one big reason you might not want to buy the stock right now: its valuation. Berkshire’s shares trade at 24.6 times forward earnings.
Even Buffett decided not to buy back shares in the third quarter of 2024. That is unusual for the legendary investor. His reluctance to buy back shares could be due to Berkshire’s premium valuation.
Some may want to wait until Berkshire’s valuation is more attractive to buy the stock. However, I think Berkshire Hathaway remains an excellent choice for long-term investors.
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Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Keith Speights has positions at Apple and Berkshire Hathaway. The Motley Fool holds positions in and recommends Apple, Bank of America and Berkshire Hathaway. The Motley Fool has a disclosure policy.
3 Reasons to Buy Berkshire Hathaway Stock Like There’s No Tomorrow was originally published by The Motley Fool
