Some investors want to swing for the fences. That might be OK to try with a small amount of fun money, especially when you are young. But that kind of investing has a low probability of success, albeit with a high potential reward.
On the other hand, building a nest egg for retirement is best done over time and with a diversified portfolio. So if I had to choose just a single stock to buy and hold, it would be the one and only Berkshire Hathaway (BRK.A -0.31%) (BRK.B -0.53%). That's because you get not only a diversified group of stocks chosen by one of the best investing minds of all time, but also a unique set of diversified operating businesses.
Berkshire Hathaway CEO Warren Buffett has built a highly diversified portfolio. Image source: The Motley Fool.
Yes, Warren Buffett is diversified
Berkshire stock immediately gives you ownership in a wide array of individual stocks. Buffett has steered the company over decades into the portfolio that the company holds today. As of its most recently filed Form 13F, the company listed over 40 individual equities worth about $300 billion.
Some may then wonder why they should bother buying Berkshire stock when they can just get a mix of the overall stock market by owning index mutual funds or exchange-traded funds (ETFs). In fact, in addition to the individual stocks, Berkshire also holds two different S&P 500 index ETFs in its portfolio.
With Berkshire Hathaway, though, you get full-time management and oversight. That has led to the company making very successful investments in five Japanese industrial conglomerates that aren't in any U.S. index. Berkshire owns about 9% of each of the five, including recognizable names Mitsubishi and Mitsui. Investors also get more than just the equity portfolio. The market sector breakdown of that portfolio is shown here.
Note that two of the 11 sectors, utilities and real estate, show no stock holdings. Berkshire has exposure to utilities and real estate through its operating businesses.
Berkshire's growing operating earnings
While the company only owns portions of the businesses represented in its equity portfolio, Berkshire has full ownership of multiple operating businesses in various sectors. Those include Berkshire Hathaway Energy (BHE), a utility that generates, transmits, and supplies energy; as well as major North American rail operator Burlington Northern Sante Fe (BNSF).
Other large businesses are Berkshire's insurance and reinsurance businesses, its HomeServices of America residential real estate brokerage firm, and various manufacturing and building products businesses.
Berkshire shareholders should appreciate owning these successful businesses as operating earnings have increased from $27.6 billion in 2021 to $30.9 billion in 2022, and $37.4 billion in 2023.
Managing expectations
That helps explain why Berkshire stock has outpaced the S&P 500 by more than double over the last five years. That's also helped the company reach a record-high level of cash and equivalents on its balance sheet.
But Warren Buffett and his younger investment managers, Todd Combs and Ted Weschler, don't currently see a place to spend much of that $325 billion. Berkshire has grown so much that investors should have tempered expectations for future performance. In the last annual report, Buffett himself said, "All in all, we have no possibility of eye-popping performance."
That doesn't mean Berkshire Hathaway should be avoided, though. It's a holding that can anchor most any retirement portfolio. Shareholders can take the same approach Buffett has concerning returns that may not be explosive. He stated, "Nevertheless, managing Berkshire is mostly fun and always interesting." So is owning Berkshire stock.
