Warren Buffett is widely regarded as the best investor of all time. Over six decades, Berkshire Hathaway's stock has crushed the broader market, and a big part of that can be attributed to the stock-picking abilities of Buffett and the team at Berkshire.
Naturally, investors watch every move the 94-year-old and Berkshire make, hoping to glean valuable insights they can apply to their own portfolios. But what many retail investors fail to recognize is that while they may not have the same brilliance as Buffett, they actually have an advantage over him. In fact, Buffett just told you what that advantage is in his recently published annual letter to shareholders.
Berkshire Hathaway is effectively too big
In this year's letter to shareholders, Buffett discussed a variety of topics including his and Berkshire's mistakes, the company's performance in 2024, Berkshire's astounding $26.8 billion tax bill, and a unique acquisition Berkshire conducted in 2005 of an RV manufacturer.
However, Buffett largely avoided discussing the current state of the stock market or economy, something investors were curious about, considering Berkshire made so many moves suggesting the market is trading at elevated and perhaps unattractive levels. Berkshire was a net seller of stocks in 2024 by a wide margin. The company hoarded cash and amassed a stockpile of roughly $334 billion at the end of the fourth quarter, a truly staggering number.
Berkshire also sold big chunks of some of its largest positions including Apple and Bank of America. While Buffett and Berkshire likely view the market as overvalued, they also opined on how the sheer size of Berkshire can make it difficult for the company to be agile:
With marketable equities, it is easier to change course when I make a mistake. Berkshire's present size, it should be underscored, diminishes this valuable option. We can't come and go on a dime. Sometimes a year or more is required to establish or divest an investment. Additionally, with ownership of minority positions we can't change management if that action is needed or control what is done with capital flows if we are unhappy with the decisions being made.
This helps to explain why Berkshire often doesn't completely exit a large stake at one time or why Buffett may not buy a stock that retail investors view as so obviously cheap. The company doesn't own too many small-cap stocks and there are probably a lot of stocks that Berkshire finds attractive but that wouldn't make any sense for the company to invest in. In the letter, Buffett noted, "Often, nothing looks compelling; very infrequently we find ourselves knee-deep in opportunities."
NYSE: BRK.B
Key Data Points
Investors who follow Buffett and Berkshire should recognize that Berkshire is a much different animal than the typical retail investor or even hedge fund because its portfolio is valued at an astronomical $296 billion (as of Feb. 26).
Retail investors should also remember that Buffett owns and operates several businesses spanning the insurance, railroad, mortgage, and energy spaces. Buffett noted that Berkshire increased its stake in Berkshire Hathaway Energy from 92% to 100% last year, a move that cost Berkshire $3.9 billion, nearly 75% of which was paid in cash and the remainder through Berkshire class B shares.
If you look at Berkshire's equity portfolio, only 13 equity holdings are currently valued above $4 billion, so while Berkshire didn't buy a ton of stocks, it was still investing in other ways.
Your advantage
Retail investors manage far less money than Berkshire, but they don't have to answer to shareholders, and they often only invest what they can afford to lose. Retail investors can be much more agile than Buffett. They can buy micro-cap stocks and go in and out of positions quicker. When they make a mistake, they can flee a stock quickly and look for opportunities elsewhere. All of this is a luxury Buffett and Berkshire don't always have.
There's a lot to learn from Buffett including being a patient investor and trying to find stocks you can hold forever. But even Buffett has acknowledged that most regular investors will have a different mindset. For instance, Buffett doesn't believe in diversity within his portfolio but acknowledges that retail investors who don't have enough time to do their homework on stocks should just buy mutual funds or exchange-traded funds.
Just because you see Berkshire selling a stock or not buying a stock doesn't mean you can't take those actions -- just make sure to do your own research. Buffett's investing philosophy may serve as an important guide, but it doesn't need to be the law.
