If you have $1,000 to invest, you might want to consider buying one of the most unusual companies out there: Berkshire Hathaway.
If you have $1,000 to invest, you won’t be able to buy the A shares of Berkshire Hathaway (BRK.A -2.04%) (BRK.B -1.96%), which trade for more than $600,000 a piece. But there are Class B shares currently priced around $400 or so. Believe it or not, it might be worth it for you to buy two shares of Berkshire Hathaway’s B class. Here’s why — and it probably isn’t the reason you’d expect.
Berkshire Hathaway is not what you think
The obvious answer to the question, “What is Berkshire Hathaway?” would be, “A company.” But that’s not the full story. Berkshire Hathaway once manufactured textiles, a business that it had to close because foreign competition was eating its lunch. What this company has really turned out to be is the investment vehicle of Warren Buffett.
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Buffett’s long-term investment success led to him getting the nickname the Oracle of Omaha, which is where he lives. To vastly simplify Buffett’s process, he likes to buy well-run companies when they appear reasonably priced (or even cheap). Then he lets the leaders of those business run the companies while he holds the stock long-term. Notably, he only gets involved in the operations of a subsidiary if there is a very good reason for it; otherwise, he lets good managers do their jobs.
While every investment isn’t a winner, Buffett has had more hits than misses over time. And many of his hits have been home runs. To put some numbers on that, since 2000, Berkshire Hathaway has a total return (which includes dividend reinvestment) of 1,010% versus 461% for the S&P 500 index. Although Berkshire Hathaway doesn’t pay a dividend, the S&P 500 does, so total return is the fairest way to compare the two. And Buffett’s investment prowess is on clear display.
BRK.A Total Return Level data by YCharts
Why buy Berkshire Hathaway?
While you may think the reason to buy Berkshire Hathaway is the success of the stock, that’s actually not the case. The reason you want to buy shares is because you believe in the investment approach that Buffett is following. Past performance doesn’t guarantee future results, but a strategy that has been so successful for so long seems highly likely to provide solid returns in the future.
There’s one more key fact here, however. Berkshire Hathaway isn’t a one-trick pony that only operates in a single industry. It is one of the most diversified businesses you can own. To highlight that point, the company operates a large insurance business, a major train line, several utilities, and a midstream energy business. Those are the investments that are large enough to break out. It also owns retail assets, a real estate sales business, travel centers, metal parts manufacturers, a chemical company, an agricultural tools maker, a homebuilder, a carpet company, an insulation manufacturer, and a paint maker. And that isn’t even the full list!
On top of that, Berkshire Hathaway owns a portfolio of stocks in which it invests but doesn’t own the whole company. That list spans from beverages to finance to energy and usually gets more attention than its fully owned investments. The real key here is that buying Berkshire Hathaway is like investing alongside Buffett, giving you access to his investment approach with just a modest amount of money.
No investment is perfect
There’s no such thing as a free lunch on Wall Street, so there are issues you’ll need to consider before buying, the biggest of which being Buffett is fairly old and is likely to end his run as CEO of Berkshire Hathaway at some point relatively soon. Although he will probably have a big hand in training his successor, when he leaves, you will want to pay close attention to what transpires. As long as Berkshire Hathaway continues to use his basic investment strategy, owning Berkshire Hathaway will remain a worthwhile choice and unlike any other stock you could buy with $1,000 today.