Should You Invest in Berkshire Hathaway?

Berkshire Hathaway (BRK.A, BRK.B) is the holding company that wholly owns Geico, BNSF, Lubrizol, Dairy Queen, Fruit of the Loom, Helzberg Diamonds, NetJets and many other companies; owns half of Heinz; owns stakes in Mars, American Express, Coca Cola, Wells Fargo and IBM.

Dividends

Berkshire Hathaway does not pay any dividends – so the stock is not a dividend play. That removes Berkshire Hathaway from contention as a source of income in my dividend portfolio. Warren Buffett, Berkshire Hathaway’s CEO, in his 1985 Shareholder Letter (and has reiterated multiple times since), outlined that dividends make sense only when managers can’t generate adequate returns by keeping money in the business. Berkshire didn’t pay a dividend because it had been able to earn above-market rates on retained profits. The same investing and dividend philosophy has existed to this day, 28 years later. However, there have been some hints by Warren Buffett that paying out dividends in the future may ease his successor’s path (source).

Performance

Warren Buffett’s advice to individual investors is to stick to low cost index funds. Due to the leverage Berkshire can use when they buy businesses and make other deals with public and private companies, individual investors can forget about getting similar deals in trying to mimic their behavior. Even Berkshire has trouble beating the market sometimes (see 5-yr performance comparison chart below) and Buffett himself always talks about the market index being the yardstick.
The blue line shows the S&P500 index and the red line shows the performance of Berkshire.

Berkshire Hathaway
1-Year Performance
Berkshire Hathaway
5-Year Performance
Berkshire Hathaway
10-Year Performance

Management

The company is headed (Chairman, President and CEO) by Warren Buffett, one of the all time best investors to have ever lived. The Vice Chairman is Charlie Munger, who is also a great investor. However, both Warren Buffett and Charlie Munger, aged 83 and 89 respectively, will sooner or later retire and the person taking over is not clear to the public yet, although a successor has been chosen internally. A lot of shareholder confidence rests in them steering Berkshire for profits and beating the market. Will this continue after they leave? Once they step down, Berkshire may well be in great hands, but will they be able to keep the flame going?
The beauty of index funds is that it is not dependent on the performance of a few individuals, but the overall health of the economy which is why I have stuck to index funds. What are your thoughts on Berkshire? Do you invest in Berkshire Hathaway?

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