If you look at the history of Berkshire Hathaway (BRK.A -0.32%) (BRK.B -0.70%) stock, it has trounced the market over the long term. There are many people who have ridden CEO Warren Buffett's success to millionaire status. But what about the future? Is Berkshire Hathaway still a millionaire-maker stock? That's a hard question to answer.
What does Berkshire Hathaway do?
Berkshire Hathaway is an insurance company. It's a transportation company. It's a utility. It's a midstream company. It's a manufacturer. It's a retailer. It is a lot of things all under one roof, and that list is actually not complete because there are still more businesses hidden under the covers. At the end of the day, Berkshire Hathaway is a conglomerate. But it's not like most other conglomerates, either.
Image source: Motley Fool.
Warren Buffett is famous as an investor. And that's how he looks at Berkshire Hathaway. So the company is almost like a mutual fund. He buys companies he thinks are good, well run, and priced attractively. That includes investing in the shares of a company as well as buying companies in their entirety. But Buffett doesn't actually run any company in which he invests; he hires good managers to do that. Buffett just keeps tabs on what's going on, only stepping in when there is a legitimate need.
This approach has worked out incredibly well for investors. Since just the turn of the century, Berkshire Hathaway's stock price has increased roughly 990%. The S&P 500 index's total return, which assumes dividend reinvestment, was only 490% or so. Looking only at price performance, the S&P rose just 280% or so. Note that Berkshire Hathaway does not pay dividends, so its total return is equal to its stock performance.
What about the future for Berkshire Hathaway?
But investing is about looking to the future. So what can investors expect from Berkshire Hathaway stock from this point, after it has rewarded investors with such a huge level of outperformance? Warren Buffett is pretty clear:
There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others. Some we can value; some we can't. And, if we can, they have to be attractively priced. Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance.
That's not a great prognosis, with Buffett basically suggesting that Berkshire Hathaway will end up providing S&P 500-like returns. For starters, that's not such a bad thing. But don't forget how Buffett invests. His comment about not being able to find needle-moving investments is being made in 2024 when the stock market is near all-time highs.
What if the stock market sells off? Historically speaking, bear markets always follow bull markets and bring with them investment opportunities. Buffett is a patient investor, only investing when he believes he's found a stock worth buying. In fact, Buffett's approach shines in bad markets, as he generally has the capital saved up to put money to work when others are fearful. At the end of the first quarter, for example, Berkshire Hathaway had over $180 billion in cash and short-term investments sitting on its balance sheet just waiting to be used.
Can Berkshire Hathaway keep going up, up, up?
Although Berkshire Hathaway is a gigantic company and future growth may not live up to past performance, don't count this company out. It has a very unique business approach that allows it to take advantage of market weakness. When the market is hot, as it is today, Buffett's approach is out of step and the company he runs will lumber along.
But when the next bear market comes along, Berkshire Hathaway is highly likely to take the actions necessary to lead to above average long-term performance. This company may not be the millionaire maker it once was, but that doesn't mean it has lost the ability to make investors rich.
