It's not just luck or a coincidence that Berkshire Hathaway (BRK.A +2.74%) (BRK.B +2.53%) has held up well during the recent market sell-off. While the Dow Jones Industrial Average (^DJI 1.61%) and S&P 500 index (^GSPC 0.56%) are down by about 8% and 10%, respectively, as of April 17, Berkshire shares have jumped 15% year to date.
Any anxiety about Berkshire Chief Executive Officer Warren Buffett moving on from the company doesn't seem to be keeping investors out of the stock. The 94-year-old investing legend has been providing shareholders with details of his succession plan for several years now. With the shares so far ahead of the market this year, though, investors might wonder if it's still a good time to buy Berkshire Hathaway.
Berkshire offers automatic diversification
Many investors watch what stocks Buffett and his lieutenants are buying or selling. Owning Berkshire shares gives you much more than the equivalent of a Buffett-run stock mutual fund, though. It also gives exposure to a wide array of public companies.
Its biggest holdings include Apple, American Express, Bank of America, Coca-Cola, and Chevron. That list of top holdings alone certainly provides a diversified portfolio. But the businesses Berkshire owns and operates provide its core value.
They operate in almost a dozen different sectors. Insurance and energy lead the way with GEICO and utility and pipeline owner Berkshire Hathaway Energy.
Multiple manufacturers, retailers, building products suppliers, food and beverage businesses, financial services, and transportation (with the BNSF Railway) round out a large collection of subsidiaries in various sectors that Buffett has skillfully collected.
Image source: The Motley Fool.
Another great year for Berkshire
Buffett makes a point of telling shareholders to monitor the company's operating earnings, rather than earnings per share (EPS) under generally accepted accounting principles. That's because the bottom line reflects mark-to-market adjustments (meaning fleeting changes in asset values flow through to net income) of the company's large equity investments on a quarterly basis. That can lead to wild swings over the short term.
Berkshire's businesses themselves have been very successful as a whole in recent years. Operating earnings soared by nearly 27% year over year in 2024. They have grown from $27.6 billion in 2021 to $30.9 billion in 2022, $37.4 billion in 2023, and $47.4 billion in 2024.
That helps explain why the stock has steadily marched higher during the past five years.
Channel Buffett's patience
Berkshire ended 2024 flush with a record $334 billion in cash. That has it set up very well for a market sell-off or even a recession. The company accumulated that huge cash stockpile as a result of patience. Buffett doesn't like to overpay for any business he's buying. Neither should investors in Berkshire Hathaway.
NYSE: BRK.A
Key Data Points
That's why buying Berkshire now should be done gradually. It's so diversified and well run that it deserves a place in any portfolio. But one metric that Buffett himself has used in the past to determine whether to buy back his own company's shares is price-to-book ratio (P/B). That is on the high side right now at 1.7.
Buffett has used 1.2 as a level he believes represents good value. The collection of assets is unique, though, and starting a position now still makes sense. One never knows when Buffett and his team will put that mountain of cash to work. The recent market downturn could lead to a big acquisition soon, and that could be another catalyst for the stock.
Buying in thirds makes sense at the relatively high valuation for Berkshire shares right now. But it's a name every investor should have exposure to, in my opinion.
