Everyone on Wall Street knows and respects Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) and its CEO, Warren Buffett. There are a lot of reasons to buy the stock, and if history is any guide, it wouldn't be a mistake to do so. However, no stock is perfect for every investor. Here are a few reasons why you might not want to buy or own Berkshire Hathaway.
1. Long-term performance means sticking around
Over the past decade, Berkshire Hathaway's stock is up roughly 215%, versus a stock advance of 155% for the S&P 500 Index. That's pretty impressive, but if you add dividends into the equation, the numbers are a lot less compelling. Berkshire Hathaway doesn't pay dividends, so its return remains at 215%. But if you reinvested dividends into the S&P 500, your total return would be about 205%. Berkshire Hathaway's lead isn't quite as compelling anymore.
Over the past year, meanwhile, Berkshire Hathaway has lagged the S&P 500, with a gain just shy of 15% versus the S&P's price advance of around 20% and total return of about 22%. Clearly, an investment in Berkshire Hathaway isn't exactly a slam dunk.
Things start to shift far more dramatically in Berkshire Hathaway's favor when you look further back in time. For example, since the turn of the century, Berkshire Hathaway is up nearly 900%, versus stock-only gain of nearly 220% and a total return gain of nearly 400% for the S&P 500. To justify buying Berkshire Hathaway, you need to be prepared to own it for a fairly long time and believe that the future will be similar to the very long-term past.
2. Berkshire Hathaway is complicated
Most companies do one or two things and do those things well. Berkshire Hathaway isn't like that. It's a holding company that invests in other companies, either by buying them or investing in them, like other investors but at a much larger scale. For example, it owns insurance companies, utilities, train companies, furniture stores, and a paint maker, among many other things. Then it invests in publicly traded stocks, notably using the premiums paid to its insurance company subsidiaries.
CEO Warren Buffett treats all these businesses, including the ones Berkshire Hathaway owns outright, much like an investor would. He looks for good businesses with good managers and lets the managers do their jobs. He checks in on the businesses to make sure they are performing well, or at least as well as could be hoped given the business environment, and only makes changes when there's a problem. It's unlikely that most investors could track all the businesses and industries that exist in Berkshire Hathaway's portfolio, so you are, basically, trusting that Buffett and his team are doing it for you.
What you can't do is go in thinking that this is a simple business. It just isn't, no matter how folksy and easy to read Berkshire Hathaway annual reports are. If you prefer simple, then Berkshire Hathaway probably won't be a good fit for your portfolio.
3. It's all about the stock
It's already been noted, but Berkshire Hathaway doesn't pay a dividend. It has a huge cash pile, so it could pay a dividend if it wanted to. However, Buffett doesn't like to pay dividends (even though he does like to collect them). So there's no reason to expect a dividend to be paid anytime soon, given the level of control and ownership Buffett has at the company.
Thus, if you are an investor trying to live off the income you can generate from your portfolio, then Berkshire Hathaway would be a bad option for you. You could simply sell some of your Berkshire Hathaway position to generate cash for living costs, which is a perfectly reasonable approach. However, in a year like 2023, when Berkshire Hathaway lagged the market, you might not want to sell those shares and risk ending up short on cash. Once again, it isn't exactly a slam-dunk investment choice.
A great company, but maybe not for everyone
When you look at the long-term performance of Berkshire Hathaway, you can see that it clearly deserves the accolades that are lavished upon it and CEO Buffett. But hindsight is 20/20, and not every year is a good one. The company is also very complex, and it requires a huge amount of trust in management. And if you like dividends, well, don't bother looking at Berkshire, since it pays none. Overall, this is a great company, but it may not be a great fit for every investor.
