ANY repeatable for week of June 2nd
For investors working with nothing more than whatever money’s left over at the end of every month after all the bills are paid, the idea of becoming a millionaire can feel out of reach. There’s good news though. It’s not impossible to build a seven-figure nest egg even from merely meager beginnings. The keys to doing so are (1) consistently coming up with whatever money you can to contribute to the effort, (2) using time to your full advantage, and of course, (3) picking the right stocks!
It’s this third component that can often prove the trickiest for some investors… choosing the right stocks. People tend to want to own stakes in exciting companies making headlines. What they need, however, are reliable investments with staying power.
That being said, there’s arguably one such perfect pick hiding in plain sight that millionaire-minded people may want to consider buying sooner than later. Better still, it’s arguably undervalued right now, bolstering the bullish case.
That stock? Berkshire Hathaway (BRK.A -2.20%) (BRK.B -2.03%).
What Berkshire Hathaway is, and isn’t
No, it’s not nearly as exciting as Nvidia (NVDA -3.00%) or Amazon (AMZN -1.44%) are at this time. Heck, it’s not even a growth stock… or even a stock, for that matter! Berkshire is a basket of stocks and a bunch of privately-owned (not publicly-traded) companies that collectively make up a massive conglomerate. It’s also a bit boring simply because its chief guru Warren Buffett tends to steer clear of scintillating story stocks, instead opting for value.
Berkshire Hathaway is precisely what most investors need, however. Buffett’s approach to picking stocks and his ability/willingness to stick with them for years at a time means this fund has a history of outperforming the broad market.
But first things first.
You probably already know Berkshire holds familiar names like Apple (AAPL -2.41%), Coca-Cola (KO -1.04%), and American Express (AXP -3.15%). The conglomerate owns around four-dozen different equities worth a total of nearly $380 billion, in fact, although the top five -- which include Bank of America (BAC -2.38%) and Chevron (CVX 1.89%) -- account for roughly three-fourths of its stock portfolio’s value.
And yet, the combined value of these publicly-traded holdings still makes up less than half of Berkshire’s total value. The other 60% of Berkshire Hathaway’s market cap (of nearly $900 billion) reflects the value of its other, privately-held businesses ranging from Duracell batteries to railroad BNSF to Fruit of the Loom to Geico Insurance to See’s Candies just to name a few. These companies are reliable cash cows, driving most of the $37.4 billion worth of operating earnings Buffett says Berkshire generated last year.
More to the point, these cash-driving business are the value-oriented crux of the reason Berkshire Hathaway has long-term millionaire-making potential.
It’s time for Berkshire to shine again
Not everyone will agree with this thesis. Most investors have watched growth stocks like the aforementioned Nvidia or Facebook parent Meta (META 0.84%) simply trounce value stocks -- including Berkshire -- coming out the bear market prompted by 2008’s subprime mortgage meltdown.
Just consider the unique economic environment of those years. Interest rates were abnormally low then for an abnormally long period of time. This tends to favor growth stocks more than it favors value stocks.
There’s also no denying the slew of incredible technological leaps made during this period, which boosted several growthy tech stocks. These of course include the advent of practical artificial intelligence platforms, the mainstreaming of social media, and the widespread adoption of cloud computing just to name a few.
As the old adage goes though, nothing lasts forever. Although the world’s certainly not going to stop using technology, the newness of the sector’s best growth opportunities is wearing off. Interest rates are also back to multi-year highs, re-reaching levels seen just before 2008’s turbulence. And curiously (although perhaps not surprisingly) in this vein, Berkshire Hathaway shares have been outperforming the S&P 500 (^GSPC -1.54%) as well as the Nasdaq (^IXIC -1.63%) since 2022’s bear market began.
Maybe that’s just a coincidence. Or, maybe cash flow matters more than potential capital appreciation again even though Berkshire Hathaway shareholders don’t derive any immediate direct benefit from the company’s cash flow (the company doesn’t pay dividends (although it does buy back shares of Berkshire in the open market).
Or, maybe Buffett’s value-minded stock-picking approach is just getting back to its long-term performance norms.
The highest-odds, highest-payoff option for most investors
To answer the overarching question, yes, Berkshire Hathaway could help make you a millionaire one day. That’s particularly true right now given that it’s still arguably undervalued despite Berkshire its recent red-hot bullishness. The analyst community still contends Berkshire shares are worth 13% more than their present price.
More to the point, your odds of building a seven-figure stash are measurably better with Berkshire than they likely would be by perpetually looking for the next hot story stock to trade. Multiple studies suggest the opposite is true, in fact … greater activity actually diminishes your net returns.
Your chief challenge, therefore, is putting aside the notion that being a more active investor improves your chances of getting more out of the stock market. A more passive approach like Buffett’s is more fruitful for most investors, and your approach couldn’t be more like Buffett’s than by owning a stake in Berkshire Hathaway itself.
A position in Berkshire also offers exposure to a bunch of tremendous privately-held cash-driving businesses that otherwise aren’t available to investors. This is an edge in its own right if for no other reason than publicly-traded stocks are growing increasingly volatile, while the market itself is growing increasingly unpredictable.
Of course, you must still do your part by committing enough capital to your position in Berkshire Hathaway to get you to the million-dollar mark. Assuming it continues logging its average annual gain of around 15%, investing $2,000 per year for 30 consecutive years would do the trick. If you’ve only got 15 years to get there though, it’s going to take about $20,000 a year to do it. And a ten-year timeframe? That’s going to require an annual investment of around $45,000.
The ultimate moral of the story, therefore, is to begin building your stake in Berkshire as soon as you can. Indeed, time remains an investor’s best friend no matter what stocks you choose to invest your money in.
