For investors who are left with nothing but the money left at the end of each month, after all the bills have been paid, the idea of becoming a millionaire can seem out of reach. However, there is good news. It’s not impossible to build a nest egg, even from meager beginnings. The key to this is consistently coming up with as much money as possible to contribute to the effort, making full use of the time and of course choosing the right stocks!
It is this third part that can often be the most difficult for some investors. People tend to want to own shares in exciting companies that are making headlines. What she needHowever, they are reliable investments with lasting power.
That said, there may be just such a perfect choice hiding in plain sight that millionaire-minded folks may want to buy sooner rather than later. Better yet, it is demonstrably undervalued at the moment, reinforcing the bullish situation.
That stock? Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B).
What Berkshire Hathaway is and isn’t
No, it’s not nearly as exciting as Nvidia or Amazon are now. It’s not even a growth stock…or even a stock! Berkshire is a basket of stocks and a bunch of private (unlisted) companies that together form a huge conglomerate. It’s also a bit boring, simply because chief guru Warren Buffett tends to eschew sparkling story stocks, opting for value instead.
However, Berkshire Hathaway is exactly what most investors need. Buffett’s approach to stock selection and his ability/willingness to stick with them for years means this fund has historically outperformed the broad market.
You probably already know that Berkshire has household names, such as Apple, Coca-ColaAnd American Express. The conglomerate owns about four dozen different stocks worth a total of nearly $380 billion, although the top five – including bank of America And Chevron — accounting for about three-quarters of the value of his stock portfolio.
Yet the combined value of these publicly traded assets still makes up less than half of Berkshire’s total value. The remaining 60% of Berkshire Hathaway’s market cap (of nearly $900 billion) reflects the value of its other, privately held companies, ranging from Duracell Batteries, Railroad BNSF, and Fruit of the Loom to Geico Insurance and See’s Candies, to name a few. to name. few. These companies are reliable cash cows, generating most of the $37.4 billion in operating profits that Berkshire said Berkshire generated last year.
These money-oriented activities are the value-oriented core of why Berkshire Hathaway has the long-term potential to become millionaires.
It’s time for Berkshire to shine again
Not everyone will agree with this statement. Most investors have been eyeing growth stocks like the aforementioned Nvidia or Facebook parent company Meta value stocks – including Berkshire – coming out of the bear market prompted by the 2008 subprime mortgage meltdown.
Consider the unique economic climate of those years. Interest rates were abnormally low then, for an abnormally long period of time. This tends to favor growth stocks more than value stocks.
There have also been incredible technological leaps during this period, boosting several tech growth stocks. These leaps include the advent of practical artificial intelligence platforms, the mainstreaming of social media, and the widespread adoption of cloud computing.
But nothing lasts forever. While the world certainly won’t stop using technology, the novelty of the industry’s best growth opportunities is waning. Interest rates are also back to multi-year highs, reaching levels seen just before the turbulence of 2008. And curiously (although perhaps not surprisingly), Berkshire Hathaway shares have outperformed in this vein S&P500 and the Nasdaq Composite since the start of the 2022 bear market.
Maybe that’s just a coincidence. Perhaps cash flow is more important than potential capital appreciation right now, even if Berkshire Hathaway shareholders don’t directly benefit from the company’s cash flow. (The company does not pay dividends, although it does buy back Berkshire shares on the open market.)
Or perhaps Buffett’s value-oriented stock selection is actually returning to long-term performance standards.
The option with the highest odds and highest payout for most investors
To answer the overarching question: yes, Berkshire Hathaway can make you a millionaire one day. That’s especially the case right now, as the stock is still demonstrably undervalued despite recent red-hot bullishness. The analyst community says Berkshire’s shares are worth 13% more than their current price.
In fact, your chances of building a seven-figure stock with Berkshire are measurably better than if you were constantly looking for the next hot stock to trade. Multiple studies suggest the opposite is true: Greater activity actually reduces your net return.
Your biggest challenge, therefore, is to put aside the idea that being a more active investor increases your chances of getting more out of the stock market. A more passive approach like Buffett’s is more fruitful for most investors, and your approach couldn’t be more like Buffett’s than owning a share of Berkshire Hathaway itself.
A position in Berkshire also provides exposure to a number of huge private cash-generating companies that would otherwise be unavailable to investors. This in itself is an advantage, as listed shares are becoming increasingly volatile, while the market itself is becoming increasingly unpredictable.
Of course, you still have to do your part by putting enough capital into your position at Berkshire Hathaway to reach the million dollar mark. Assuming it continues to register its average annual profit of about 15%, an investment of $2,000 per year for 30 consecutive years would be sufficient. However, if you only have 15 years to get there, it will cost about $20,000 per year to achieve it. And a term of 10 years? That requires an annual investment of approximately $45,000.
The ultimate moral of the story is to start building your interest in Berkshire as soon as possible. Time remains an investor’s best friend, regardless of which stocks you invest your money in.
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 created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $741,362!*
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 June 3, 2024
Bank of America is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Apple, Bank of America, Berkshire Hathaway, Chevron, Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.
Could This Undervalued Stock Make You a Millionaire One Day? was originally published by The Motley Fool
