Berkshire Hathaway (BRK.A -0.39%) (BRK.B -0.56%) is an unusual company in many ways. However, it has a long-term performance track record that is simply astounding, proving that its unique structure has worked out very well for investors over time.
CEO Warren Buffett is taking actions now to prepare the company for the next big investment opportunity, which could allow this millionaire-maker stock to mint more millionaires in the future. Here's what you need to know.
What is Berkshire Hathaway?
There are some companies that are very easy to describe. For example, some would easily fall into the utility, pipeline, train, or insurance sectors. And Berkshire Hathaway is a big player in all of those, and more. The full list includes chemicals, manufacturing, retail, paint, furniture, and still more. In fact, while the business description in a normal 10-K can be as short as a paragraph or two, Berkshire Hathaway's business description goes on for pages and pages.
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This speaks to a unique aspect of Berkshire Hathaway. CEO Warren Buffett likes to buy entire companies, typically ones that are well run, when they are attractively priced. He then lets the management teams of those companies do their jobs and grow the individual businesses they run. Conglomerate Berkshire Hathaway benefits from the long-term business growth that is generated from the collection of companies under the Berkshire Hathaway umbrella.
In this way, Berkshire Hathaway can be looked at as something similar to a mutual fund. In fact, the company even has a portfolio of stock investments. The list of stocks in the portfolio is closely watched by Wall Street and includes names such as Coca-Cola (KO -0.19%), American Express (AMX 0.83%), Chevron (CVX 0.01%), and Apple (AAPL -1.32%). For many investors, the reason to buy Berkshire Hathaway is to invest alongside Warren Buffett.
Berkshire is expensive, but so is everything else
If you are looking at Berkshire Hathaway as a way to get access to the investment skills of Buffett and his team, there's probably no wrong time to buy it. However, Berkshire Hathaway is still a stock that trades based on supply and demand. Right now, the stock is trading near all-time highs, just like the S&P 500 (^GSPC -1.11%).
In other words, it looks expensive. Though, to be fair, it has looked expensive many times in the past, only to drive higher over time.
The thing is, Buffett is cognizant of the high price. In fact, in the company's 2023 annual report, he warned investors that it would be hard to achieve strong performance in the future, given the current market dynamics and Berkshire Hathaway's large size (the market cap is around $1 trillion). But Buffett is making important moves to prepare for the future -- he is selling appreciated stock investments, including Apple and Bank of America (BAC -0.47%).
BRK.A Cash and Short Term Investments (Quarterly) data by YCharts
To put numbers on this, cash and short-term investments on the company's balance sheet have nearly doubled over the past year. At the end of the third quarter of 2024, the number was a shocking $325 billion. It looks very much like the CEO is taking profits while the market is still in bull mode so that he will have cash to invest when the bear eventually comes back and brings prices back down. This isn't at all shocking for Warren Buffett, who was trained by famed value investor Benjamin Graham.
Taking the long-term view with Berkshire Hathaway
Here's the thing that investors need to consider: If you want to own Berkshire Hathaway stock, the best time to buy it is likely going to be the hardest time for you to pull the trigger. In other words, the stock probably won't be on sale until the nadir of a bear market, when most investors will be running scared.
Unless you have a stomach made of steel, it might be better to start a position now, despite the elevated price, so that you will have more reason (specifically adding to your existing position) to buy later on. That way, if history is any guide, when Berkshire Hathaway's stock pushes back above its all-time highs, again, you'll be there to benefit and, perhaps, be among the next class of millionaires that Berkshire Hathaway mints.
