I'm a big believer in "skin in the game." If someone -- like me -- is going to write about how a stock is a great buy, I think they'd better back that up with their own money. Otherwise, if the stock tanks, the writer still gets paid while everyone who took that advice loses money. To me, that doesn't seem fair.
I use that as a backdrop because the stock I'd buy -- if I could only buy a single stock for my entire portfolio -- is not one I have any intention to own. Why is that? Because for most of us, we don't live in a world where we can (or should) only own one stock.
That said, if such a world magically existed, I know exactly which stock I'd select. Once you learn what it is -- and why I don't own it -- I think it'll make more sense.
About that one stock
Here's the No. 1 thing to consider when thinking about your "one stock." Is your primary goal:
- To find a big winner?
- To preserve your wealth -- whatever it may be -- while having the opportunity to add to it?
The answer to this question is paramount. If you choose No. 1, you may as well stop reading.
I've been investing for over 10 years and have more than tripled the market in that time. Here's the thing: Most stocks I was sure were going to be home runs have been enormous duds. Case in point: I put more money (cost basis) into PagerDuty than all but two other investments in my life. The results: The stock is down 58%!
Luckily, modest investments in companies such as Shopify and Mercadolibre have more than balanced that out.
Here's the takeaway: You cannot afford to choose a stock that has any reasonable potential to lose significant value. And that drastically cuts down on the universe of potential investments.
My one stock to buy is...
Looking at the options before me, the one stock I'd choose is clear: Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B). My reasoning is exceedingly simple: This is the type of company that will do fine most of the time thanks to its wide moat, and it will gain a significant, long-term upper hand during bear markets and economic crises.
In a word, Berkshire Hathaway is an extremely antifragile company. Let's dive into what that means.
Berkshire's core businesses with wide moats
I can't cover every nut and bolt about Berkshire in one article, but let's review the core businesses that fall under the company's umbrella:
- Insurance: This is the most important part of Berkshire. Insurance provided over half of the operating income from the company's businesses. Just as crucial, the float the business provides is used by Buffett to invest in stocks. This business is protected by high switching costs and the network effect.
- Energy and railroads: Berkshire's ownership of the BNSF rail lines, as well as Berkshire Hathaway Energy, provided another third of operating income. These businesses are protected by enormous barriers to entry (it's not easy to build a brand-new railroad!) and via government regulation.
- Everything else: This runs the gamut -- from See's Candies to home builders to specialty chemical companies.
The key thing to understand is this: Buffett only buys companies that get great returns on their investments (almost always because they have wide moats), are run by ethical and competent teams, and are being offered up for reasonable prices.
This doesn't protect them from market swoons, but it does make them solid and reliable business that can withstand such swoons.
You actually own much more
By owning shares of Berkshire, you own much more than just the companies mentioned above. That's because Buffett uses excess cash to invest in shares of other companies. Among the top 10 such investments:
|Company||Ownership % of End of 2019||Approximate Value of Stake Today|
|Bank of America||10.7%||$32 billion|
|American Express||18.7%||$20 billion|
|Wells Fargo||8.4%||$17 billion|
|US Bancorp||9.7%||$8 billion|
|JPMorgan Chase||1.9%||$8 billion|
|Delta Airlines||11%||$4 billion|
|Bank of New York Mellon||9%||$4 billion|
This means that by owning Berkshire, you actually enjoy part-ownership of an entire fleet of stalwart companies with wide moats.
And yet, this is the real determining factor
The impressive operations and investments in wide-moat businesses, while important, are not what makes Berkshire the one stock I'd own.
My reason is this: The company has $128 billion in cash and short-term investments on its balance sheet. If an economic crisis hits, Berkshire's enormous war chest provides it the ability to become stronger as a result of the crisis. This can happen in three primary ways:
- Berkshire can buy back its own stock at below intrinsic value -- thus creating more value for existing shareholders.
- It can make more investments in other stocks at bargain prices.
- Berkshire can acquire successful companies outright that are now being offered at reasonable prices.
I cannot emphasize enough that this doesn't mean Berkshire's stock won't go down in times of crisis. Instead, it means the company will grow stronger during the crisis -- and that will eventually be reflected in a higher stock price once markets recover.
Why I don't own Berkshire stock
I'm not against owning shares of Berkshire. In fact, someday, that might be exactly what I do. For now, though, it simply doesn't fit within my investing framework. I prefer to invest in several companies with disruptive technologies that are growing by leaps and bounds. Because I'm still in my thirties and have decades until I reach retirement, I believe such stocks will serve me best. Berkshire isn't one of those companies.
Fortunately, you don't have to limit your investments to shares of only one company. But this is still a worthwhile mental exercise because it can help you determine what's most important for your own portfolio -- and how you'll go about reaching those goals.
If (for some reason) you only want to own shares of one company, Berkshire is a solid bet.