Warren Buffett said in 2009 that if he had to put all of his net worth into one stock, it would be Wells Fargo. That got me thinking about which stock I’d put 100% of my net worth into, if I had to.
Of course, I don’t have to invest everything into one stock and I have no plans to do so. But I think it’s still useful to consider what stock I’d go for, if I did have to.
There are a few worthy contenders for me. But at the end of the day, the only real choice for me is Berkshire Hathaway (NYSE:BRK.B).
Crucially, I think that Berkshire is a business that I can understand. I also think that it has a highly predictable future.
Understandability
Top of my list of requirements was a business that’s easy to understand. Obviously, that might be different for different people, but I think that I can understand Buffett’s company fairly well.
A lot of this is to do with the Berkshire Hathaway shareholder meetings that are available to listen to. I think that there’s a lot of good information to be gained from them about how the company works.
Berkshire Hathaway is a collection of businesses. It brings in money from its insurance operations and invests part of that into other businesses.
There are two keys to this strategy. The first is being careful not to lose money when writing insurance policies and the second is making good investments.
Predictability
Businesses are never entirely predictable. But I think that Berkshire Hathaway is one that I can forecast reasonably well.
In my view, a recession remains the biggest risk to Berkshire Hathaway’s business. But I think that its diverse operations should fare well over time.
This is because the vast majority of the company’s profit comes from industries that are unlikely to experience significant disruption. These are insurance, railways, and energy.
Around 22% of profits come from the company’s railroad business. This is a business that is well protected by regulation, meaning that it is unlikely to be disrupted by competitors.
Insurance underwriting provides around 19% of Berkshire’s operating income, which is dominated by car insurance. Since this is required for drivers, I think that this is likely to remain stable.
Berkshire’s energy business provides another 9% of income. Since this is another regulated utilities business, I think that its future is fairly predictable relative to other businesses.
A stock to go all-in on?
When Buffett said that he’d put 100% of his net worth into Wells Fargo, the stock was below $10 per share. Today, the stock trades at over $45 per share and Berkshire Hathaway has sold its entire stake.
Going all-in on any stock is risky. And while Berkshire Hathaway shares are a big part of my portfolio, I’m not going to invest my entire net worth into them.
