At the recent Berkshire Hathaway (NYSE:BRK.B) annual shareholder meeting, CEO Warren Buffett announced his retirement. He will step down at the end of the year, by which time he will be 95.
Since that announcement, the share price has fallen nearly 5%. I’ve never owned any Berkshire shares, but a quick glance at a chart shows I would have done very well buying some over any meaningful period. They’re up nearly 200% in five years and 573% in 15 years.
Longer term, the returns are legendary. One mind-blowing stat I read recently was that even if Berkshire Hathaway’s share price was to fall 99% by year-end, Warren Buffett would still have outperformed the S&P 500 over six decades!
Reasons to buy
Let’s start with reasons why I would be interested in investing in Berkshire.
The first is that the company’s incredibly well-diversified. Beyond a stock portfolio that includes world-class firms like Coca-Cola, Apple and Visa, it owns entire businesses across insurance, energy, railroads, manufacturing, and consumer goods.
This range of companies and investments would help me sleep well at night as an investor.
Another major attraction here is the colossal cash pile of more than $300bn. This gives the management team a massive war chest to deploy if the stock market enters a meltdown. That can’t be ruled out later this year, especially when the economic damage from tariffs is widely expected to start showing up.
Related to this, I’d expect Berkshire’s valuation to hold up better than most in a bear market. That’s because investors see it as a safe haven and would assume that cash pile would be put to good use.
One reason to be cautious
It can be interesting to do thought experiments as an investor. Here’s one: if I had to pick one stock to hold for 20 years while stranded on a desert island, which would I trust to deliver solid returns while I’m away?
Previously, I would have plumped for Berkshire stock. The patient and intelligent stewardship of Berkshire under Buffett and his investing lieutenants would have given me great peace of mind (financially) as I foraged about trying to survive on my island.
In a changing world that is often chaotic, Buffett and Berkshire represent cool-headedness and continuity.
But Buffett’s retirement does change this calculation a bit, in my mind. Will there be an evolution in style — more growth stocks, for example?
One thing Buffett said at the annual meeting struck me: “I’m somewhat embarrassed to say that Tim Cook has made Berkshire a lot more money than I’ve ever made.“
Of course, Buffett is being modest. It was his decision to start buying Apple stock in 2016, before making it Berkshire’s largest holding by far. That bet has paid off handsomely.
Still, was it a tacit admission that Berkshire’s returns might have been even stronger had Buffett embraced tech stocks earlier? I don’t know. But a slight change in capital allocation towards more growthier names might increase returns (or risk).
Invest in Berkshire?
Personally, I don’t expect too much change moving forward. Greg Abel was designated as Buffett’s successor four years ago, after all.
Still, I would prefer to see how Berkshire evolves over the next couple of years before considering the stock again.
