It is a sad time for shareholders of Berkshire Hathaway (BRK.A +2.74%)(BRK.B +2.53%), and the global investment community at large. Warren Buffett's longtime business partner Charlie Munger passed away on Nov. 28, 2023, nearly a month before reaching 100 years of age.
Buffett and Munger both have expressed confidence that the investment conglomerate they helped build will be an empire built to last. Just a week prior to Munger's passing, Buffett said as much in a letter outlining his annual charitable giving pledges:
Berkshire – one of the largest and most diversified companies in the world – will inevitably encounter human errors in judgment and behavior. These occur at all large organizations, public or private. But these mistakes are unlikely to be serious at Berkshire and will be acknowledged and corrected. We have the right CEO to succeed me and the right Board of Directors as well. Both are needed.
And who will be that next CEO? It's Berkshire's non-insurance business head Greg Abel. And Munger's replacement will be the insurance business head Ajit Jain. And what of the empire they will inherit the reins to? Are shares of Berkshire still a long-term buy for 2024?
NYSE: BRK.B
Key Data Points
Berkshire an ultimate all-weather "index fund"?
A year ago, after an epic rise in Berkshire Hathaway stock, I said shares of Buffett's conglomerate remained a great long-term buy, but maybe not a "best buy now." Berkshire stock rose but slightly lagged behind the rally in the S&P 500 index, and especially underperformed the Nasdaq Composite index since then.
Data by YCharts.
But there's a simple explanation for this: Berkshire is a steadier long-term investment, especially compared to the tech-heavy Nasdaq, and even to the increasingly tech-heavy S&P 500 (owing to the massive size of companies like Apple, Microsoft, and Amazon that make up a large portion of the index's composition).
That's because, outside of Berkshire Hathaway's holdings in publicly traded stocks (dominated by Apple, which makes up nearly 50% of this portfolio), the company wholly owns myriad "old and boring" but highly profitable businesses.
Included in those are insurance underwriting and investment income from those insurance company holdings (like GEICO, part of Abel's oversight). The insurance business's operating income through the first nine months of 2023 rallied 165% from depressed levels last year to $11.4 billion. Railroads (BNSF, acquired in 2008), utilities (including extensive natural gas pipelines), the newly purchased majority stake in the Pilot Travel Center business, as well as numerous manufacturing and retail companies (collectively, Jain's half of the Berkshire empire) are also having a solid year. In all, Berkshire's wholly owned subsidiaries' operating income was up 19% so far in 2023 to $28.9 billion.
Thus, the giant that Buffett and Munger helped build is a great all-weather investment, for good times and bad. Berkshire's stock performance in 2023, though slightly trailing the rebound from the 2022 bear market for the major stock indexes, is solid for a year where there has been frequent mention of recession risk. Berkshire is itself a type of index of great companies that can steadily perform no matter the economic climate of the moment.
Berkshire Hathaway a best buy before the end of 2023?
As it was this time a year ago, Berkshire Hathaway's price-to-book value (a metric Buffett and Munger have often used over the years to determine how much stock to repurchase) remains near its historic highs. This keeps me from calling it a best buy headed into 2024.
But Berkshire need not be dirt cheap to be a great buy. Regardless of that price-to-book value, shares have tended to steadily grind higher over the long term.
Data by YCharts.
After a solid rally in 2023, the S&P 500 and Nasdaq Composite indexes could have bumps in the road ahead. Berkshire stock could as well. Nevertheless, this company is built to last, and proven leadership with great investment acumen (Abel and Jain) have been installed to keep things moving in the right direction. If you're looking for a great stock you can buy and forget, Berkshire Hathaway remains a top pick as a core portfolio holding.
