Shares of Berkshire Hathaway (BRK.A -0.10%) (BRK.B -0.14%) are trading near their all-time highs, just like the S&P 500 index (^GSPC -0.19%). For that reason, Warren Buffett's company may not be of much interest if you are a diehard value investor committed to finding cheap stocks. However, this isn't your ordinary company, and there is an argument to be made that there's never a bad time to buy it.
What does Berkshire Hathaway do?
Berkshire Hathaway basically owns other companies. A lot of companies are structured this way, but what sets Berkshire apart is the vast number of companies that live underneath its broad umbrella.
Those companies span a surprising range of industries. Again, it isn't unusual for a company to operate as a conglomerate with businesses that span many industries, but the breadth of Berkshire Hathaway's diversification is vast, including utilities, retail stores, manufacturing companies, and railroads, among many, many others.
Image source: Motley Fool.
The real foundational story here is that Berkshire Hathaway functions as an investment vehicle for Warren Buffett. Essentially, the man known as the Oracle of Omaha (and his investment team) buys whole companies and then operates them within the Berkshire Hathaway family.
To be fair, Buffett doesn't run them. He hires talented individuals to operate the companies he and his team buy. But Berkshire benefits from the long-term growth of those investments.
That's kind of how a mutual fund operates, only a mutual fund doesn't buy entire companies. That said, Buffett is also a shareholder in a select number of large publicly traded companies.
That portfolio is tracked closely by investors, and Buffett is often a valuable advisor to the companies in which he owns shares. He and his team provide the same kind of monitoring and advisory role with the companies they own, too, but that can't be seen from Wall Street because they aren't public.
Basically, what you are really getting when you buy Berkshire Hathaway is the ability to invest alongside Warren Buffett and his team. This fact changes the equation a little bit when it comes to buying and selling Berkshire stock.
Is there a wrong time to hire a good asset manager?
So, if you're buying the investment services of Buffett and his team, how has that worked out historically? As the chart below shows, an investment in Berkshire Hathaway has trounced the performance of the S&P 500 index over time. That hasn't been the case in every year, but the long-term total returns, which assume dividend reinvestment, are very clear.
BRK.A total return level, data by YCharts.
In fact, stock pullbacks have historically been buying opportunities, given the subsequent price increases. But would you have the emotional strength to buy Berkshire Hathaway stock while it was falling? It takes a special kind of investor with a deep contrarian streak to buy when everyone else appears to be selling. Most investors won't make that leap of faith.
There are better and worse times to put money to work in the market, for sure. And given the lofty price of the S&P 500 index, now is probably a worse time. But if you are looking to invest today, well, giving your cash to Warren Buffett and Berkshire Hathaway to invest on your behalf is probably one of the better choices you could make.
Prepare today for the next Berkshire Hathaway sell-off
Here's a compromise position. Accept that Berkshire is trading near all-time highs, steel yourself and buy a small position. That way, you have your foot in the door and a reason to invest more at a later date.
Keep some cash on the sidelines waiting for the day (which will arrive sooner or later) when Berkshire Hathaway stock falls. Then, given you already have a position in the stock, you may have an easier time buying more when the shares look more attractively priced.
However, if history is any guide, this company will keep growing well into the future. So, even that starter position is likely to work out well over the long term.
