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Berkshire Hathaway: The Stocks $219,000 Buys

By Jordan Wathen - Apr 26, 2016 at 4:04PM

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The stocks you buy when you buy a Class A share of Berkshire Hathaway, and why they aren't as important as they used to be.

Besides being too large to grow quickly, a common criticism of Berkshire Hathaway (BRK.A 0.10%)(BRK.B -0.03%) is that it will simply follow the market. Berkshire Hathaway owns substantial stakes in some of the largest publicly traded businesses, and thus acts more like a stock fund than an operating company, or so the argument goes.

But if we step back and put that to the test, this line of thinking is becoming increasingly untrue. The operating businesses make up the substantial majority of the valuation investors ascribe to Berkshire Hathaway.

What you get with one Class A share
So, you've accumulated enough wealth to acquire exactly one Class A share of Berkshire Hathaway, currently worth $219,278 at the time of writing. As a result, you now own a share of Berkshire, which owns a share of Wells Fargo, Kraft Heinz, and Coca-Cola, just to name a few of its largest investments.

What if we break it down by individual stock per A-share to see how much of each company you actually own?

Let's start with what Buffett calls the "Big Four" -- Wells Fargo, Coca-Cola, IBM, and American Express -- and tack on another large investment in Kraft Heinz. I'm not one to change up Buffett's preferred method of reporting his investments, but Kraft Heinz, being Berkshire's largest stock investment, is simply too big to ignore.

Source: 13F filing dated December 31, 2015, with market prices as of April 25, 2016. Excludes deferred taxes, which would be due upon sale if Berkshire sold its legacy investments at a gain.

After tallying it up, I find that Berkshire's five biggest stakes add up to about 25% of the value of a Class A share's value. Note the positions that get the most criticism for their recent underperformance -- IBM and American Express -- currently make up just 6.1% of the value of each Berkshire share.

Furthermore, the positions shrink exponentially as we move down the table of its stock holdings. In fact, the next 10-largest stocks (No. 6 to No. 15) make up only about $18,263.85 of value per A-share, or 8.3% of the A-share's market value.

By now, we've more than crossed over what I call the "Buffett Line" and into the positions more likely to have been picked by Ted Weschler and Todd Combs, portfolio managers who help Buffett manage the company's public equity portfolio. From here on, each investment is truly a rounding error.

Source: 13F filing dated December 31, 2015, with market prices as of April 25, 2016. Excludes deferred taxes.

All in all, the top 25 Berkshire Hathaway stock holdings sum to just $78,698 of value per Class A share, or roughly 36% of their market value. (I've ignored a few other stock and preferred stock investments sprinkled inside Berkshire, which, at this point, won't add much to the calculation.)

As a final point of comparison, consider that the railroad alone, BNSF, produced $4.2 billion in net earnings in 2015. If Berkshire accounted for the proportional earnings generated by its stakes in Wells Fargo, Coca-Cola, IBM, and American Express, the "Big Four" would have produced $4.7 billion in earnings for Berkshire in 2015.

All of this is to say that, while buying shares of Berkshire Hathaway will necessarily mean you're buying part of a public stock portfolio, Berkshire is more operating business than investment fund. And though you may take issue with one or many of Berkshire's stock investments, the simple fact is that even the largest stock holding makes up little more than 7% of the market value of the A-shares. 

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