No investor is a bigger superstar than Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) Warren Buffett. But the beauty of Berkshire Hathaway stock is that even when Buffett is no longer able to run the company, the tenets that have guided his investment decisions will remain in place for his successors to follow for decades to come. Let's take a closer look at why Berkshire Hathaway stock offers good long-term prospects even after its recent run to record highs.
Berkshire's one-stop shop for investors
Even among conglomerates, you won't often find the breadth of industry coverage that you'll see among Berkshire's mix of businesses. Among the largest parts of Berkshire are its core insurance business, with its GEICO unit being the best-known insurance carrier in the mix; the railroad company Burlington Northern Santa Fe, which it purchased in early 2010; and its majority stake in MidAmerican Energy, which provides electric utility services as well as operating power-generation facilities using both conventional fuels and renewable generation methods like wind.
But along with those big parts, investors who own Berkshire Hathaway stock also get a wide range of other wholly owned businesses. Consumer brands like Helzberg Diamonds and See's Candies as well as business services companies like NetJets show the wide variety of businesses that Berkshire has felt comfortable buying over the years, demonstrating Buffett's commitment to finding profitable opportunities wherever he can.
What has made Berkshire's business unusual is that it hasn't hesitated to invest its insurance reserves in stocks rather than the bond investments that many of its insurance-company peers use. By building up a stable of blue-chip public companies with strong long-term stock performance, Berkshire has capitalized on the better returns that those stocks have provided compared to short-term bond investments.
That business model has been so successful that other, smaller insurance companies have emulated it. For instance, Fairfax Financial (NASDAQOTH:FRFHF) and Markel (NYSE:MKL) have used the same investing model to take advantage of their respective core insurance businesses. Both Fairfax and Markel have had substantial success, showing the power of using temporarily available premium reserves to make higher-return investments.
What's ahead for Berkshire?
Many bearish investors have pointed to Buffett's mortality as the primary threat to Berkshire Hathaway stock. They point to multiple episodes in which titans of the corporate landscape have turned to Berkshire with irresistible business propositions, using Buffett's reputation to help bolster their own business prospects. We saw two excellent examples of that during the financial crisis, when both General Electric and Goldman Sachs came to Buffett for financing in deals that have proven quite lucrative for Berkshire.
The counterpoint to the bearish argument, however, is that Buffett has been preparing for the day when he has to leave Berkshire's leadership to a successor. With massive purchases of stable businesses, Berkshire has found uses for most of its capital, reducing the need for a successor to find Buffett-like investments in the immediate future. With Berkshire's new stock repurchase authorization, any plunge from Buffett's departure will give Berkshire an opportunity to buy back shares at levels below Buffett's assessment of the company's intrinsic value.
Clearly, Berkshire isn't a risk-free investment. But its combination of businesses offers some protection against all but the most serious downturns. The stock's performance during the tech bust of the early 2000s stands as a testament to Berkshire's durability in the face of tough conditions for investors.
Why Berkshire's worth another look
If you haven't looked at Berkshire Hathaway stock lately, it's worth delving into the company's vast array of businesses. With even more diversification than many mutual funds offer, Berkshire Hathaway stock has room to run higher because of the culture of value investing that Buffett has set in place -- and because that culture will survive long after he departs as Berkshire's leader.
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Fool contributor Dan Caplinger owns shares of Berkshire Hathaway. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Berkshire Hathaway and Markel. The Motley Fool owns shares of Berkshire Hathaway and Markel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.