I'm a big believer in "skin in the game." If someone -- like me -- is going to write about how a stock is a great buy, I think they'd better back that up with their own money. Otherwise, if the stock tanks, I still get paid while everyone who took my advice loses money.
Does that seem just? Especially when I know beginning investors often visit our site?
I use that as a backdrop because the stock I'd buy -- if I could only buy a single stock for my entire portfolio -- is not one I have any intention to own. But once you see why, I think it'll make more sense.
Image source: Getty Images.
About that one stock
Here's the No. 1 thing to consider when thinking about your "one stock." Is your primary goal:
- To find a big winner?
- To preserve your wealth -- whatever it may be -- while having the opportunity to add to it?
The answer to this question is paramount. If you choose No. 1, you may as well stop reading.
I've been investing for over 10 years and have more than tripled the market in that time. Here's the thing: Most stocks I was sure were going to be home runs have been enormous duds. Case in point: I put more money (cost basis) into PagerDuty than all but two other investments in my life. The results: The stock is down 58%!
Luckily, modest investments in companies such as Shopify and Mercadolibre have more than balanced that out.
Here's the takeaway: You cannot afford to choose a stock that has any reasonable potential to lose significant value.
As such, that drastically cuts down on the universe of potential investments.
My one stock to buy is...
Looking at the options before me, the one stock I'd choose is clear: Berkshire Hathaway (BRK.A -0.09%) (BRK.B -0.24%). My reasoning is exceedingly simple: This is the type of company that will do fine most of the time thanks to its wide moats, and it will gain a significant, long-term upper hand during bear markets and economic crises.
In a word, Berkshire Hathaway is an extremely antifragile company. Let's dive into what that means.
Berkshire's core businesses with wide moats
We can't cover every nut and bolt about Berkshire in one article, but let's review the core businesses that fall under the umbrella of Berkshire:
- Insurance: This is the most important part of Berkshire. It provided over half of the operating income from the company's businesses. Just as crucial, the float the business provides is used by Buffett to invest in stocks. This business is protected by high switching-costs and the network effect.
- Energy and railroads: Berkshire's ownership of the BNSF rail lines, as well as Berkshire Hathaway Energy, provided another third of operating income. These businesses are protected by enormous barriers to entry (it's not easy to build a brand new railroad!) and via government regulation.
- Everything else: This runs the gamut -- from See's Candies to home builders to specialty chemical companies.
The key thing to understand is this: Buffett only buys companies that get great returns on their investments (almost always because they have a wide moat), are run by ethical and competent teams, and are being offered up for reasonable prices.
This doesn't protect them from market swoons, but it does make them solid and reliable business that can withstand such swoons.
You actually own much more
By owning shares of Berkshire, you own much more than just the companies mentioned above. That's because Buffett uses excess cash to invest in shares of other companies. Among the top 10 such investments:
| Company | Ownership % of End of 2019 | Approximate Value of Stake Today |
|---|---|---|
| Apple | 5.7% | $78 billion |
| Bank of America | 10.7% | $32 billion |
| Coca-Cola | 9.3% | $24 billion |
| American Express | 18.7% | $20 billion |
| Wells Fargo | 8.4% | $17 billion |
| US Bancorp | 9.7% | $8 billion |
| JPMorgan Chase | 1.9% | $8 billion |
| Moody's | 13.1% | $7 billion |
| Delta Airlines | 11% | $4 billion |
| Bank of New York Mellon | 9% | $4 billion |
Data source: Berkshire Hathaway. Value of ownership accurate as of February 23, 2020.
These introduce an even wider range of stalwart companies with wide moats you can benefit from.
And yet, this is the real determining factor
Despite all of the above -- the impressive operations and investments in wide-moat businesses -- that's not what really makes Berkshire the one stock I'd own.
It's this: The company has $128 million in cash and short-term investments on its balance sheet. If an economic crisis hits, Berkshire's enormous war-chest provides it the ability to become stronger as a result of the crisis. This can happen in three primary ways:
- Berkshire can buy back its own stock at below intrinsic value -- thus creating more value for existing shareholders.
- It can make more investments in other stocks at bargain prices.
- Berkshire can acquire successful companies outright that are now being offered at reasonable prices.
I cannot emphasize enough that this doesn't mean Berkshire's stock won't go down in times of crisis. Instead, it means the company will grow stronger during the crisis -- and that will eventually be reflected in a higher stock price once markets recover.
Why I don't own Berkshire stock
I'm not against owning shares of Berkshire. In fact, someday, that might be exactly what I do. For now, though, it simply doesn't fit within my investing framework.
Fortunately, you don't have to limit your investments to shares of only one company. But this is still a worthwhile mental exercise because it can help you determine what's most important for your own portfolio -- and how you'll go about reaching those goals.
If (for some reason) you only want to own shares of one company, Berkshire is a solid bet.
