Generally, it's a bad idea for an investor to buy only one stock. The Motley Fool suggests you should aim for a portfolio of at least 25 stocks to protect yourself against extreme volatility in any particular stock. With that said, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), the nearly $700 billion holding company, could be considered the exception to the rule. Here are three reasons why Berkshire Hathaway would be my choice if I could only buy one stock.
Reason one: A portfolio unlike any other
As a holding company, Berkshire owns a majority stake in over 60 subsidiaries ranging from insurance companies like Geico to consumer favorites like Dairy Queen and See's Candies. Berkshire currently holds stock in over 40 publicly traded companies across the energy, consumer goods, and fintech sectors.
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However, despite what appears to be a heavily diversified stock portfolio, certain positions are much more concentrated than others. CEO Warren Buffett once famously said, "Diversification as practiced generally makes very little sense for anyone that knows what they're doing...[it] is a protection against ignorance." Buffett practices what he preaches, so over 40% of Berkshire's $360 billion-plus portfolio is in Apple stock. And only five companies make up about 75% of Berkshire's managed holdings.
Reason two: A history of beating the market
With its unique portfolio, Berkshire Hathaway stock doesn't typically track the performance of an index fund like the S&P 500; it crushes it. In a year like 2022, when the stock market is down 15%, Berkshire's stock is up about 3%. Additionally, Berkshire is outperforming the S&P 500 with dividends included on a one-, three-, and five-year basis.
Since Warren Buffett took the helm at Berkshire Hathaway in 1965, the company has produced a 20.1% compound annual gain, nearly doubling the S&P 500's 10.5% compound annual return during the same time period.
So while past performance doesn't necessarily predict future results, Berkshire Hathaway has proven time and time again that it's well-positioned to outperform the market.
Reason three: A mountain of cash
With Berkshire's insurance business, the company receives premiums from its customers upfront. This cash -- called "the float" -- is theirs to invest until policyholders' claims deplete it. As a result, Berkshire currently has $106 billion in cash to deploy for stock investments. So despite recent interest rate hikes, where many companies will have to pay more to borrow money, Berkshire's cash hoard insulates the company from needing to borrow money at higher rates.
And as previously mentioned, the stock market is down 17% in 2022, meaning Berkshire can invest in companies at deflated prices. That played out in the first quarter of 2022 when Berkshire deployed $51 billion after years of doing very little with its outsized cash position. Buffett has previously stated he will never let Berkshire's float fall below $30 billion, which still leaves plenty of room for him to invest more money.
The bottom line
Beyond these reasons why Berkshire Hathaway is a stock worth buying, what if I told you the greatest investor of the last 75 years is buying the stock at a historic rate? That's right; Warren Buffett directed Berkshire Hathaway to repurchase $51.7 billion in stock, or roughly 9% of the company's shares outstanding since year-end 2019.
Look to Berkshire Hathaway's next 13F -- a quarterly report that discloses a holding company's stock positions -- to see if the company put more of its pile of cash to work to take advantage of the down market. Alternatively, Buffett could just continue buying back Berkshire stock. Either way, the company is well-positioned to outperform the market -- just as it has done throughout Buffett's tenure.
