Warren Buffett, the legendary CEO of Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%), is widely regarded as one of the greatest investors of all time. He follows the principles of value investing, which centers on unearthing undervalued companies that can generate consistent profits over the long term.
Buffett's No. 1 rule of investing is to never lose money, and he does so by building a diversified portfolio of businesses, stocks, bonds, and cash that can withstand any market downturn. So if you're looking for a stock you can buy and hold forever, you may want to consider investing in Berkshire Hathaway. Read on to find out more about this top value stock.
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Berkshire Hathaway: A fortress of value
Berkshire Hathaway is not just a stock, but a conglomerate of businesses that operate in various sectors, such as insurance, energy, transportation, manufacturing, retail, and technology. Some of the best-known subsidiaries include Geico, BNSF Railway, Dairy Queen, Duracell, and Fruit of the Loom. These businesses generate steady cash flows that Buffett can use to invest in other companies or buy back shares. Berkshire Hathaway also owns a massive portfolio of stocks that includes some of the largest and most successful companies in the world, such as Apple, Bank of America (BAC -0.21%), and American Express. Many of these stocks even pay dividends that add to Berkshire Hathaway's earnings.
In addition, Berkshire Hathaway has a boatload of cash and U.S. Treasury bills that give it ample liquidity and flexibility to take advantage of any opportunities that arise in the market. Buffett is known for making big bets when others are fearful, such as during the 2008 financial crisis, when he invested billions in beaten-down blue chips such as Bank of America and Goldman Sachs. Berkshire Hathaway's substantial cash reserves also act as a buffer against any potential losses or liabilities that may arise from its operations, its investments, or a downturn in the broader economy.
A track record of excellence
Berkshire Hathaway's performance over the decades has been nothing short of impressive. The company's market value per share has grown at an annualized rate of 19.8% since 1965, compared with 9.9% for the S&P 500 index (when including dividends). However, investors should always remember that past performance is rarely a predictor of future returns when it comes to stocks. That being said, Berkshire Hathaway's past success flows from Buffett's long-term vision and discipline as an investor, which bodes well for the company's future.
The key reason is that Buffett doesn't chase short-term trends or fads, but instead focuses on finding companies that have durable competitive advantages, strong management teams, and attractive valuations. He also doesn't sell his stocks unless there's a fundamental change in their business prospects or he finds a better opportunity elsewhere. He treats his stocks as if he owns the entire business, not just a piece of paper. This approach allows him to benefit from the power of compounding and avoid unnecessary taxes. Perhaps most importantly, Buffett has also created a culture of excellence and integrity at Berkshire Hathaway, which ought to keep the company on the right track in the years ahead.
Key takeaway
Berkshire Hathaway has a proven track record of delivering superior returns to the broader market over the long term. Moreover, the company has a strong balance sheet and a mountain of cash that enable it to weather any storm and capitalize on any opportunity. Berkshire Hathaway is also well positioned to succeed following Buffett's eventual succession as CEO, thanks to its superb leadership team and core values. In all, this Warren Buffett stock screens as a worthwhile buy-and-hold for almost any type of portfolio.
