3 Reasons I'm Thankful for Warren Buffett

For good reason, Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) and Warren Buffett are in the news often, but there are three reasons I'm particularly thankful for Buffett and his company this holiday season.

1. Index fund style
There is common wisdom that the best thing for many individual investors to do is to invest their money into index funds instead of picking individual stocks. Certainly there is good reason to consider an investment in specific companies, and there are absolutely instances where putting your money into stocks is the right move, however that requires an appropriate amount of diligence and effort, and not simply blindly throwing money into the next big thing.

One of the things I'm most thankful for about Berkshire Hathaway is that it is practically the most diversified company out there. Principally, it is an insurance business, but it also has one of the largest railroads in the U.S., a giant energy company, and much more. Its balance sheet lists its businesses by assets as follows:

Business

Assets

Insurance and Other

$302

Railroad, Utilities and Energy

$131

Finance and Financial Products

$26

Source: Company Investor Relations. 

But it isn't just that it has a diverse set of businesses, it also invests in the equity of other companies. As of the most recent quarter, the $92 billion of equity that Berkshire Hathaway held by industry was broken out as follows:


Source: Company SEC Filings.

While there is clearly an outsized level in the financial sector, this compares relatively similarly to the S&P 500:


Source: McGraw Hill Financial. 

I think it's worth noting, though, that the success of financial companies, largely more than any other sector, is principally predicated by the health of the American economy, and as a result, I would suggest a holding of financial companies is largely more diverse than holding a large amount of energy companies. Consider, too, that Berkshire Hathaway's biggest financial holdings, Wells Fargo and American Express, representing about a third of the portfolio, are some of the safest and most diverse financial companies out there.

All of this is to say that owning stock in Berkshire Hathaway is a great thing for individuals because it's essentially like owning an index fund, except that fund is run by the best investors of all time.

2. Outsized returns
One of the more frequently cited statistics about Buffett and his performance at the helm of Berkshire Hathaway is that if you'd invested $100 in Berkshire Hathaway and $100 in the S&P 500 in 1964, you'd have $7,433 in your S&P 500 holding at the end of 2012, and $586,817 in your Bekshire Hathaway holding, which is absolutely astounding.

While the returns have slowed slightly over the past decade, when you look at the growth of Berkshire Hathaway's book value compared to the S&P 500 returns over 10-year periods, you'll see that it is still resoundingly beating the market:


Source: Company Annual Report.

In fact, I would even argue that Berkshire Hathaway growing its book value by 123% between 1999 and 2009 (its second lowest 10-year return), when the S&P actually fell by 9%, is perhaps more impressive than some of the periods when Berkshire Hathaway Hathaway returned more than 1,000%, considering that in many of those years, the S&P 500 was up around 300%.

That's because between 1999 and 2009, Buffett beat the market by an astonishing 14.5 times, versus many years when it was "only" 3 to 4 times greater than what the S&P 500 returned. Certainly shareholders of Berkshire Hathaway are going to be endlessly pleased with the returns on their investment in this great company.

3. Buffett's honesty
The final thing I'm thankful for is Buffett's openness and honesty when it comes to his monolithic company. Whether it be in his annual letter to shareholders, where he is totally candid about the performance of the company whether it is good or bad (but as you know, it's almost always good), his willingness to the discuss the of the direction of Berkshire (hence his continual references to his "elephant gun" and desire to make a big move), or just his down-to-earth nature in interviews with the media.

As a result of his outsized success, wealth, and stature, Buffett could unequivocally be the most combative, tight-lipped, and pompous individual on the planet, but instead he is seemingly one of the friendliest, open, and humble guys around. And in the season of giving thanks, that's something that we can all admire.

More from Warren
One of the things I am also thankful for is that through the years, Buffett has offered up countless investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.


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