Holding just one stock is obviously very risky. But what if that stock was made up of dozens of underlying businesses, essentially resembling a mutual fund? In this case, the conglomerate's good businesses may make up for bad ones in certain years, and vice versa. Even more, what if the dozens of businesses own mostly had a common theme of being enduring? Of course, there is a stock like this. It's Warren Buffett's Berkshire Hathaway (BRK.A 0.95%) (BRK.B 0.87%).
Berkshire is a collection of high-quality operating businesses tied together by a capital allocation machine that has worked in good times and bad. The diversified conglomerate features a sprawling insurance operation, one of the largest utility and energy businesses in North America (Berkshire Hathaway Energy), a railroad, and dozens of manufacturing, service, and retail businesses. On top of that sits a concentrated equity portfolio in durable franchises including Apple, American Express, Bank of America, Coca-Cola, and Chevron. The mix is uncommon -- and built to endure.
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What makes Berkshire different
At the core is insurance float -- premiums collected today for claims that may not be paid for years. When underwriting is disciplined, that float can effectively be a low- or even negative-cost (essentially a profit center) funding source. Berkshire's insurance operations, over the long haul, have been producing underwriting profits and turning float into a structural advantage. The company, therefore, can redeploy cash from insurance and its other subsidiaries into the best ideas across three lanes: buying more businesses outright, expanding the ones it already owns, or adding to stakes in public companies. That flexibility is hard to replicate.
Enhancing Berkshire's durability, some of the company's biggest assets are the types likely to endure for decades. Yes, those same assets, like railroads and utilities, are capital-intensive and highly regulated -- but they have long asset lives. Meanwhile, the company's manufacturing, service, and retail subsidiaries are, together, a quiet workhorse that throws off cash in most environments. Taken together, these units give Berkshire a multi-engine earnings base that isn't dependent on a single product cycle or a narrow customer niche. If one area slows, others often pick up the slack.
Opportunistic capital
Berkshire has a war chest of cash on its balance sheet. As of the end of the company's most recently reported quarter, Berkshire's total pile of cash and cash-like investments stood at more than $344 billion. Sure, you could view that as idle money. But it's also dry powder. Historically, Berkshire has often patiently held off on deploying large sums of cash until it uncovered opportunities that can truly move the needle. With such a substantial sum of cash on hand, the company is prepared to act swiftly when it sees something it likes.
Why this is my single stock pick
If I could only buy and hold one stock, I'd pick the one that gives me a diversified set of enduring businesses, a culture of discipline, and the balance sheet to be greedy when others are fearful. Berkshire checks all three.
Yes, Warren Buffett is on his way out, but the leadership succession is clear, and successor Greg Abel has created significant wealth for shareholders in a prior role at MidAmerican Energy, which grew massively under Berkshire's ownership and under Abel's direction. But Berkshire's underlying culture of integrity, conservatism, discipline, and preparedness runs so deep that it doesn't depend on any one person's charisma. It depends on bedrock principles that have been written into Berkshire's DNA since Buffett took the helm at the company in 1965.
Berkshire won't be the fastest horse in every bull market. But it doesn't have to be. It's built to compound -- steadily, sensibly, and with the freedom to seize the right opportunity at the right time.
To top it all off, shares are priced attractively. On recent data, the stock trades at just under 1.6 times book value, making a reasonable entry for a collection of assets and advantages like this.
Sure, it's not generally advisable to own just one stock. But if I were forced to own one, I believe Berkshire is the best option by a long shot.
