How to Invest in Berkshire Hathaway Stock

Berkshire Hathaway (BRK.A -0.76%)(BRK.B -0.69%) is a holding company run by investing legend Warren Buffett. He took control of the former textile manufacturer in 1965 and transformed it into one of the largest companies in the world.

Berkshire serves as his investment arm. Buffett uses the cash flows generated by Berkshire's operating businesses and investments to acquire other companies and make new investments that grow shareholder value.

Berkshire Hathaway differs from other investment firms, like hedge funds. Anyone can invest in Berkshire Hathaway if they have enough money to buy at least one Class B share (about $360 in late 2023).

For comparison, hedge funds are open only to accredited investors, meaning those with a high income or net worth and who can meet the fund's minimum investment, which can be $1 million or more. Berkshire Hathaway also doesn't charge exorbitant fees to its investors because it sees them as partners, not clients.

Buffett's company has a tremendous track record of growing value for shareholders. From 1965 through 2022, Berkshire's shares delivered a 19.8% compound annual return.

That has outperformed the S&P 500 by almost 2-to-1 (the S&P 500 has produced a 9.9% compound annual return during that period). Here's a step-by-step guide on buying Berkshire Hathaway shares and some factors to consider before investing in the company.

How to buy

How to buy Berkshire Hathaway stock

To buy shares of Berkshire Hathaway, you must have a brokerage account. If you still need to open one, here are some of the best-rated brokers and trading platforms and a step-by-step guide to buying Berkshire Hathaway stock using Fidelity's five-star-rated platform.

Fidelity makes it easy to buy stocks. Its website offers a video tutorial and a step-by-step guide. Here's a screenshot of how to place a stock trade with Fidelity.

On this page, fill in all the relevant information, including:

• The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
• The stock ticker symbol (BRK.B for Berkshire Hathaway).
• Whether you want to place a limit order or a market order. The Motley Fool recommends using a market order, as it guarantees you buy shares immediately at the market price right at that moment.

Once you complete the order page, submit your order and become a Berkshire Hathaway shareholder.

Should I invest?

Should I invest in Berkshire Hathaway?

Before buying shares of Berkshire Hathaway, you must determine whether you want to invest directly in the company. First, let's review a summary of the company's business model.

Buffett and his investing partners use the money Berkshire's businesses earn for its shareholders and reinvest it in:

1. Businesses they can control by acquiring 100% ownership: Berkshire Hathaway's operating businesses include insurance, railroad, utilities and energy, manufacturing, service, and retailing. Notable brands include GEICO, BNSF, Pampered Chef, Pilot Travel Centers, Fruit of the Loom, and See's Candies.
2. Publicly traded stocks to passively own pieces of high-quality businesses: Some of the top stocks Warren Buffett's company owned as of late 2023 included Apple (AAPL -0.35%), Bank of America (BAC -0.21%), Coca-Cola (KO 0.0%), American Express (AXP -0.62%), and Kraft Heinz (NYSE:KHC).

Reasons to invest in Berkshire

Here are some reasons to consider purchasing the company's stock:

1. You believe Berkshire Hathaway can deliver a higher return than an S&P 500 index fund.
2. You like Warren Buffett's investment style and want to trust him and his team with your money.
3. You don't need to earn dividend income.
4. You believe Buffett and his team can put Berkshire's retained cash flows and cash balance to work in growing shareholder value over the long term.
5. You understand how Berkshire Hathaway makes money and want to follow the company.
6. You realize your investment in Berkshire Hathaway could lose money and might underperform the S&P 500.

Reasons not to invest in Berkshire

On the other hand, here are some factors to consider that might make you opt not to purchase shares of Berkshire Hathaway:

1. You're worried about Warren Buffett's age and whether his eventual successors will stick to the blueprint they have laid out for growing shareholder value.
2. You're concerned that the death of Buffett's long-time business partner, Charlie Munger, might affect the company's future performance.
3. You're nearing or in retirement and need dividend income.
4. You don't firmly believe Berkshire Hathaway can outperform the S&P 500 over the long term.
5. You are a younger, more growth-oriented investor and don't like Buffett's value investing approach.
6. You're too busy to follow Berkshire Hathaway and don't desire to invest directly in individual stocks.

Profitability

Is Berkshire Hathaway profitable?

Profit growth helps power stock price appreciation over the longer term. That makes it a good area for beginning investors to focus on before buying shares.

Berkshire Hathaway is a consistently profitable company. The company's operating profit hit a record $10.8 billion in the third quarter of 2023. That was 40% above the year-ago level and about $800 million above the previous record set in the second quarter of 2023.

The company retains all its earnings to allocate toward growing shareholder value. It also holds a lot of cash on its balance sheet -- a record $157 billion at the end of 2023's third quarter -- that it intends to deploy when it finds compelling investment opportunities.

Dividends

Does Berkshire Hathaway pay a dividend?

While Berkshire Hathaway is a very profitable company, it doesn't pay dividends to its shareholders. CEO Warren Buffett believes he and his team can create more value for shareholders by retaining that cash and allocating it toward initiatives that create shareholder value.

Those options include reinvesting it into existing businesses, making acquisitions, or repurchasing shares when they trade at a discount to the company's estimated intrinsic value. The company bought back $6.9 billion in stock during the first nine months of 2023.

ETF options

ETFs with exposure to Berkshire Hathaway

Instead of actively buying shares directly, you can passively invest in Berkshire Hathaway stock by investing in a fund holding its shares. Berkshire Hathaway is among the larger publicly traded companies by market capitalization, making it a widely held stock.

Berkshire is in several stock market indexes, including the S&P 500 index. As a result, index funds and exchange-traded funds (ETFs) that benchmark their returns against those indexes hold Berkshire Hathaway stock.

According to ETF.com, 227 ETFs held a reported 130.2 million shares of Berkshire Hathaway in late 2023. The SPDR S&P 500 ETF Trust (SPY 0.95%) was the biggest holder, with 20.7 million shares.

However, the ETF with the largest allocation to Berkshire Hathaway was the iShares U.S. Financials ETF (IYG -0.03%), at 14.6% of the fund's total holdings. That compares to only 1.7% from the SPDR S&P 500 ETF Trust, making the iShares U.S. Financials ETF a better option for investors seeking a more passive way to gain exposure to Berkshire Hathaway without directly buying shares.

Stock splits

Will Berkshire Hathaway stock split?

Berkshire Hathaway has never implemented a stock split for its Class A shares (BRK.A), which is one reason those shares traded at around $550,000 apiece in late 2023. It will likely never split that class of its stock.

However, to make its stock more accessible to more investors, in 1996, Berkshire created Class B shares (BRK.B) with a much lower price point. The company has only split that stock once. It completed a 50-for-1 split in 2010. At the time of the split, shares were trading at around $3,500.

As of late 2023, Berkshire had not announced an upcoming stock split. With the Class B shares trading at around $360 a share, it doesn't seem likely that Berkshire will split its stock anytime soon, given its historical trend.

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The bottom line on investing in Berkshire Hathaway stock

An investment in Berkshire Hathaway is one in Warren Buffett and his team. It's a wager that they can allocate the cash flows produced by Berkshire Hathaway's operating businesses and investments to create more value for shareholders.

They have done a phenomenal job growing value for investors over the years. While that past success is no guarantee of future returns, Berkshire Hathaway has the potential to be a solid long-term investment.

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