Warren Buffett is one of the most respected investors of our generation. His track record of returns spanning multiple decades makes him respected in our parents’ generation too! A lot of focus is put on trying to mimic Buffett in his investment ideas. Yet to take some of the pressure off, some decide to buy Berkshire Hathaway (NYSE:BRK.B) shares instead. Here’s why.
The story behind Berkshire Hathaway
Berkshire Hathaway was originally a textile manufacturing company back in the 1800s. In the 1960s, Buffett was already on the scene with his investing ideas. He bought stock in the company, and over the next few years built his stake so that he was the majority shareholder.
By 1967, Buffett not only controlled the textile operations, but he started to use the business to buy other entities. His first stake was in insurance, but from then on he focused more and more on investing the funds from the insurance business into other stocks.
Fast forward to 2023 and Berkshire Hathaway is one of the largest companies in the world. It currently has a market cap of $747bn. The share price has rallied 25.8% over the past year, and has generated strong long-term returns for investors. After all, the increase in value in the business reflects the profits that Buffett makes from the portfolio of investments.
Getting exposure to Buffett
Given the public listing requirements of Berkshire Hathaway, each quarter we get a snapshot of what Buffett is holding. The latest 13F filing shows that his largest shareholding is Apple, making up 46.4% of the portfolio.
Beyond that, other large holdings include Coca-Cola, American Express, and Bank of America. Each of these purchases have an interesting history. For example, he has been buying Coca-Cola shares since the late 1980s. Given the increase in the share price and the dividend per share, the stock now pays Buffett hundreds of millions of dollars in dividends each year.
Although it’s not a perfect correlation, the earnings and dividends reaped by Buffett via Berkshire Hathaway are reflected in the share price. So if I want to get exposure to what Buffett is buying and selling, an easy way is to simply buy Berkshire Hathaway shares.
The other side of the coin
It might be the case that an investor doesn’t agree with some of the investment decisions that Buffett chooses. That’s a risk in buying this stock. There could be value for some in noting down what the great man is doing and then selectively buying the individual stocks that are preferred.
Others might feel that buying the stock is a bit too passive in nature. Being active and managing a diversified portfolio can be incredibly rewarding, so I get this argument as well. As a happy medium, I feel that holding some Berkshire Hathaway shares as part of an actively managed group of stocks is the best middle ground.
