Is Berkshire Hathaway (NYSE: BRK.B) still worth buying for my portfolio? The American conglomerate run by Warren Buffett has seen consistent growth since the world-famous investor took over in 1970. I already own Berkshire Hathaway B-shares (there are two kinds of share available, Class A and Class B) and have seen some decent returns over the past year. But is now a good time to add to my position?
What I like
Berkshire Hathaway fully owns over 60 companies and has partial stakes in dozens more, including Apple. It is run by Warren Buffett and his friend Charlie Munger, who between them have made it one of the most successful conglomerates in the world.
To me, it seemed that buying Berkshire stock was the equivalent to buying into the most successful actively managed portfolio in the world. An actively managed ETF is different from a passive ETF or index fund in that a manager watches the market and chooses to add or subtract stocks based on their personal analysis. If the manager is successful then they can bring in much greater returns. However, management comes with no guarantee of growth and can attract significant fees.
From 1965–2020 Berkshire Hathaway achieved, on average, a 20% compounded annual growth, far outstripping the S&P 500‘s 10% in the same period.
Buying Berkshire shares feels like a sort of cheat code, allowing me access to dozens of companies and active management from the best investors in the business.
What worries me
Over the past few months, Berkshire Hathaway’s share price growth has slowed. I believe this has a lot to do with fears of inflation and potential interest rate hikes in the US. Berkshire was one of many companies in the US that benefited incredibly from the Covid-era investment boom. Investors poured cash into a stock that they knew was in safe hands. As a result, Berkshire B-shares climbed from a low of $169 in May 2020 to their current high of $287.
But if interest rates rise, will those investors choose to take profits? Its impossible to know for certain, but it does make me hesitant to buy more shares right now.
Buffett would of course tell me to ignore the noise and buy shares if I believe in the company. But so much of the confidence in Berkshire is actually confidence in Buffett and he is likely to retire in the near future. The man who will replace him, Greg Able, has a much smaller public profile, so it is harder to know what direction he will take the company. Munger has said that Able would “keep the culture” at Berkshire Hathaway, making reference to the decentralised operating structure. But it’s not clear if he will bring new insights to the company and help it to modernise, or if he will follow the same course as his predecessor.
Both of these eventualities come with risks, and I worry that the very mention of Buffett stepping down will hurt the stock price.
Conclusion
Berkshire Hathaway has been exceptionally managed for the past 50 years, and has even provided an impressive return on investment over the last two. But as it enters this critical stage in its evolution, I will refrain from adding to my position and wait until any potential turbulence is in the rear-view mirror.
