3 Reasons to Buy Berkshire Hathaway

If we were to ask the world to name the most successful financial holding company in history, it's a pretty safe bet Berkshire Hathaway  (NYSE: BRK-B  ) (NYSE: BRK-A  ) would take the cake.

Why? As Warren Buffett pointed out on the very first page of his 2012 letter to Berkshire shareholders, the company's per-share book value has grown by an astounding average of 19.7% each year since 1965, good for an overall gain of 586,817% -- and, might I add, absolutely destroying the S&P 500's perfectly respectable 7,433% return over the same period, including dividends.

To put that in perspective, if you had taken $5,000 in 1965 and achieved with it the same annual rate of return as Berkshire, today it would be worth a whopping $29.3 million.

OK, so it's easy to look back and see how much money you could have made investing with Berkshire over the past 48 years, but does that mean the Omaha-based conglomerate won't continue to outperform the broader market indexes going forward? Hardly.

In fact, here are three reasons you can feel great about buying shares of Berkshire Hathaway today.

1. Look who's driving this thing

Source: AP.

While Buffett's leadership has undoubtedly left its mark on Berkshire over the years, much of the company's success has stemmed from (in Buffett's recent words) its "cadre of terrific operating managers," on whom he relies to run Berkshire's underlying businesses with very little oversight.

That's also part of the reason it's so darned difficult to figure out exactly who Buffett's eventual successor will be; the possible list of candidates includes a wide range of names from former hedge-fund manager Todd Combs to insurance head Ajit Jain, MidAmerican Energy's Gregory Abel, Geico's Tony Nicely, and Tad Montross of General Re.

In any case, Buffett made it clear in his 2011 shareholder letter that Berkshire has already chosen not only his successor, but also "two superb back-up candidates as well."

In the same paragraph, Buffett then reminded us that more than 98% of his net worth is in Berkshire stock. He elaborated:

Being so heavily concentrated in one stock defies conventional wisdom. But I'm fine with this arrangement, knowing both the quality and diversity of the businesses we own and the caliber of the people who manage them. With these assets, my successor will enjoy a running start.

Which brings me to the next reason you might consider buying shares of Berkshire.

2. Taking over the world, one business at a time
Of course, great leadership certainly can't hurt. Buffett himself often says he likes to find businesses capable of performing well even in spite of the occasional bad manager, even half-joking once that Coca-Cola (NYSE: KO  ) could be run by a ham sandwich.

Luckily for Berkshire shareholders, Buffett hasn't had to test that principle, thanks largely to its massive, stable insurance segment, which includes industry behemoths Geico and General Re. As I noted recently, however, Berkshire also made nearly $9.7 billion last year from its stakes in chemical maker Lubrizol, industrial stalwart Marmon, metalworking specialist Iscar, MidAmerican Energy, and Burlington Northern.

And don't forget that Berkshire just last month acquired a 50% stake in ketchup king H.J. Heinz (UNKNOWN: HNZ.DL  ) , after which Buffett publicly stated he fully intends to continue his buying spree with Berkshire's ever-growing cash pile.

What's more, Berkshire also owns literally dozens of other various diversified companies, including Fruit of the Loom, Dairy Queen, NetJets, Pampered Chef, See's Candies, Shaw Industries, McLane, Clayton Homes, and Ben Bridge Jeweler, to name just a few.

With a list like that, the word "diversified" just doesn't seem to do Berkshire justice.

3. Like a mutual fund, only better
Finally, and as you might be aware, Buffett also knows a thing or two about investing. So if you're still not convinced by Berkshire's incredible management and incredibly diverse group of solid underlying businesses, maybe its equity portfolio will push you over onto the bull's side of the fence.

You see, thanks to Berkshire's massive balance sheet, Buffett is afforded the ability to invest both its shareholder equity and the float from its insurance operations -- the latter of which provided more than $73 billion in free money to invest last year.

In case you're worrying what will happen when Buffett is no longer around to manage that money -- he will be 83 this August, after all -- rest assured he's covered those bases, too. For the past few years, Buffett has been steadily increasing the responsibility of two like-minded former hedge-fund managers in 42-year-old Combs and 52-year-old Ted Weschler, most recently noting they have both "proved to be smart, models of integrity, helpful to Berkshire in many ways beyond portfolio management, and a perfect cultural fit."

As a result, Combs and Weschler now manage a total of nearly $10 billion of Berkshire's portfolio and should be well prepared to take over completely when they're called to do so.

Foolish final thoughts
In the end, it's entirely up to you to decide whether you should add Berkshire to your own portfolio.

However, if you'd still like to learn more, check out Berkshire expert Joe Magyer's premium report on the company. In it, he provides investors with key reasons to buy as well as important risks to watch out for. Click here now for instant access to Joe's take on Berkshire!


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  • Report this Comment On March 31, 2013, at 2:51 PM, luckyagain wrote:

    Even the very best company can be destroyed by bad management. That said, what will really determine the future of Berkshire is how well it handles the transition from Buffett. That is the real unknown and unknowable. I do not doubt that Buffett's successor will be an outstanding manager but will he have Buffett's touch in allowing each of the separate companies to be managed by their current managers or will these companies lose their current CEOs?

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12/26/2014 4:02 PM
BRK-B $151.35 Down -0.19 -0.13%
Berkshire Hathaway CAPS Rating: *****
BRK-A $226500.00 Down -15.00 -0.01%
Berkshire Hathaway… CAPS Rating: *****
HNZ.DL $72.49 Down +0.00 +0.00%
H.J. Heinz Company CAPS Rating: ****

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