1 Reason Why Berkshire Hathaway Is the Perfect Stock to Own

Warren Buffett is often quoted as strongly recommending that almost all investors should be putting their savings into a low-cost index fund. However, what many people don't realize  is that there's an even better option right in front of them in Berkshire Hathaway (NYSE: BRK-B  )

Berkshire Hathaway offers diversification
Berkshire Hathaway's class A shares trade at $192,255, but those of us with less means can purchase the class B shares for "only" $128. Berkshire is an interesting company because it's like an index itself. It's made up of various companies in disparate industries. On top of that, Warren Buffett manages Berkshire's sizable investment portfolio, which includes Coca-Cola, Wells Fargo, American Express, and IBM.

The numerous subsidiaries of Berkshire Hathaway include Geico, the automobile insurer famous for its advertisements with the talking gecko, and Fruit of the Loom, ubiquitously known for its underwear and white t-shirts. Berkshire is also home to Dairy Queen, the chain of fast-food restaurants known most for their ice cream, and NetJets, the private jet company responsible for getting wealthy people and corporate executives across the United States and to other continents.

An investment in Berkshire Hathaway has diversification built right into it -- just like the S&P 500. Just a few examples of Berkshire Hathaway's offerings include:

  • Insurance for cars and boats
  • Manufacturing of recreational vehicles and flooring
  • Jewelry, shoes, and candy
  • Transport of natural resources and manufactured goods via railcars
  • Newspapers and business news portals

With Berkshire Hathaway's stock, you're essentially getting an equivalent of an index fund -- like the S&P -- with the added benefit of not having to pay any fees. 

Oh, and one other thing: it's also outgained the S&P 500 by more than 250 percent.

Long-term outperformance

SPY Chart

The performance of Berkshire's stock during the past 20 years has been truly stellar.

Currently, Berkshire trades at a discount compared to the S&P 500, so it's as good of a time as any to jump in on this long-term outperformer. Berkshire trades at a price-to-earnings multiple of 16 against the market's 18. The company also trades at half the price-to-book value of the market, 1.3 versus the market's 2.6.

An investor would be paying less for the earnings of Berkshire Hathaway and for the value of its equity compared to the market by purchasing its stock.

Can Berkshire Hathaway keep it up?
Berkshire Hathaway has grown tremendously throughout its history through the outperformance of its businesses, acquisitions, and Warren Buffett's spectacular allocation of capital.

The company has returned around 20% per year on a book value basis since 1965, compared to the market's ten percent over the same period . In 2013, Berkshire Hathaway's stock outperformed the S&P 500 by returning 32.7% compared to the S&P's 29.6%.

Although similar returns will be tough for Berkshire going forward, the company is a great representation of the American economy, and a gathering place for some of its greatest businesses. Even though Buffett promulgates the benefits of index funds for lay investors, his own company might be the best option for them.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour. (That's almost as much as the average American makes in a year!) And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Read/Post Comments (2) | Recommend This Article (7)

Comments from our Foolish Readers

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  • Report this Comment On May 23, 2014, at 3:38 PM, Wills61 wrote:

    I have BrkA and BrkB in a few funds including Fool Funds. However I can not resist the draw of this great Holding Company.

    I am loading up on it as it is one of Tom's picks and I have come to enjoy reading about Warren Buffet. His prose and reports are first class common sense. The kind of horse sense on may only gain from the Midwest. If one has never spent time there one would not get it.

    Thank you for pointing out and confirming my choice. The fact that it is like a great mutual fund without the fees! Peace

  • Report this Comment On May 24, 2014, at 11:19 PM, CoreAndExplore wrote:

    Good article: Berkshire is essentially a well-diversified mutual fund all wrapped up in a single stock, without the fees.

    One quibble, though: it's not exactly fair to compare BRK's share price performance to the S&P without also including dividends. Factoring in dividends, BRK actually underperformed the S&P by a smidgen (the index returned 32.39% vs. BRK's 32.17%). And since the financial crisis, BRK has actually underperformed the high-flying S&P as well, thanks mainly to the company lagging the index by over 24% in 2009.

    All that said, I love the company and the stock, and think that investors get a good value in it anytime it dips below 1.5 p/b. Besides, old Warren could be there another 10 years, who knows (not that that's a requisite for continued success).

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Related Tickers

9/2/2015 4:00 PM
BRK-A $199360.00 Up +1215.70 +0.61%
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Berkshire Hathaway CAPS Rating: *****