There are thousands of stocks that you can choose to buy. The good news is that (with enough money) you can buy any of them you want. But what if you could only buy one stock?
At first I thought I'd have a difficult time with this question. It's not about a favorite stock -- I can easily answer that question. But the answer turned out to be easier than I expected: If I could buy only one stock, it would be Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B). Here's why.
Probably the most attractive aspect about Berkshire Hathaway stock is that when you own it, you also own many other stocks. As of its most recent filing to the SEC, Berkshire had stakes in more than 40 other publicly traded companies. In a way, buying Berkshire Hathaway is like buying an exchange-traded fund (ETF). And the Berkshire "ETF" is pretty well-diversified.
Name a major sector in the U.S. economy and Berkshire probably is invested in it. Energy? Berkshire owns a sizable position in Phillips 66. Healthcare? There's DaVita, Johnson & Johnson, and Sanofi. Consumer goods? Berkshire has long held a stake in Coca-Cola and also owns shares of Kraft Heinz and Procter & Gamble. The company also has positions in stocks in airlines, automakers, retailers, financial services companies, and more.
Berkshire Hathaway even initiated a large position last year in the biggest technology company on the planet -- Apple (NASDAQ:AAPL). The tech giant has become one of the top three holdings in Berkshire's investment portfolio. Berkshire Chairman Warren Buffett told CNBC earlier this year that he likes Apple's "future earnings power." I totally agree with that viewpoint.
In addition to liking Berkshire for the stakes in other companies it has, I like Berkshire's core business. Even there, though, there's plenty of diversification.
Probably the most prominent business under the Berkshire umbrella is GEICO. Berkshire also owns several other insurance businesses -- General Re, Berkshire Hathaway Reinsurance Group, and Berkshire Hathaway Primary Group. Insurance is a cash cow for the company, helping to finance its investments in other businesses.
Berkshire's manufacturing segment is well-positioned to benefit from overall global economic growth. Business units in the segment range from Benjamin Moore paints to Duracell batteries to Fruit of the Loom apparel. The acquisition of Precision Castparts in 2016 added another solid performer to Berkshire's lineup.
The company's railroad, Burlington Northern Santa Fe, continues to contribute solid revenue and earnings growth. It's a similar story for Berkshire's energy and utilities companies, which include PacifiCorp, MidAmerican Energy, NV Energy, and Northern Powergrid. Supply chain services company McLane is yet another big winner for Berkshire.
Picking Berkshire Hathaway is also made easier by the stock's track record. From 1964 through 2016, Berkshire's compounded annual gain is 20.8%. That's more than twice the annual gain of the S&P 500 index during that period. The overall gain for Berkshire stock was a mind-blowing 1,972,595%.
It's not that Berkshire stock always performs well -- it doesn't. In fact, the stock underperformed the S&P 500 index in 2011 and 2015. And Berkshire barely edged the S&P 500's gains in 2013. So far this year, it's also neck and neck with the major index.
But Warren Buffett doesn't buy stocks only for the short term. Neither do I -- and neither should you. The stock market can be volatile, so what's important is how a stock performs over the long run. Few stocks can compare with Berkshire Hathaway on that measure.
The Buffett way
Warren Buffett just turned 87 years old. While I hope and pray he keeps playing his ukulele and writing annual letters to shareholders for many years to come, the reality is that he won't be around forever. However, I think Buffett's way of thinking will remain at the heart of Berkshire Hathaway for a long time to come.
Make no mistake -- it's Warren Buffett's approach to investing that has made Berkshire Hathaway the success story that it is today. Along the way, though, he has brought in people who can carry the torch. They might not make every decision exactly like Buffett would, but that's fine. The main thing is that they generally adhere to the idea that Warren Buffett has believed in for decades: Buy great businesses and hold on to them. So if you could only buy one stock, buy one with a management team that follows the same philosophy -- you'll do well over the long run.