Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) stands tall as a cornerstone of financial history, showcasing unparalleled growth and resilient returns. Dating back to 1980, its shares have surged over 2,000 times, transforming a mere $100 to a staggering $250,000.
Today, with a monumental market cap of $900 billion, Berkshire’s days of meteoric growth may be limited. However, this has not prevented the stock from outpacing the S&P 500 by a remarkable margin over the last three years.
Investors now find themselves faced with a pivotal question: should they buy, sell, or hold onto Berkshire stock?
Defying Conventional Wisdom
Over decades, the market has anticipated Berkshire’s formidable pace to decelerate. And it has indeed moderated. Between 1980 and 1990, shares surged by a factor of 28. Subsequently, from 1990 to 2000, they grew sixfold. Transitioning to the next decade, this rise halved. And in the past ten years, values nearly tripled.
While the velocity of Berkshire’s ascent has slackened, the shares continue to outperform, consistently surpassing most market indexes across successive decades. This is no small feat. As portfolios burgeon in size, surpassing market performance becomes increasingly arduous. With a mammoth $900 billion market cap, Berkshire faces limitations in expanding its investment sphere. Even sizable investments in companies that quadruple in value wouldn’t significantly impact Berkshire’s expansive portfolio.
In a famous quip from 1999, Buffett boasted, “The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.”
Despite Berkshire’s tempered returns and a restricted investment landscape, the company’s enduring success is underpinned by an assembly of legendary investors engaging in long-term commitments. With stalwarts like Ted Weschler, Todd Combs, and the late Charlie Munger in the fold, Buffett commands a robust team of investment virtuosos. By holding the premier position in Berkshire’s holdings, Apple embodies a prime example with a stake exceeding $153 billion. Yet, Apple’s towering value at over $2.6 trillion underscores the vast potential for future investments by Berkshire, affirming the sustained prowess of the company.
While Berkshire’s growth has tempered, and its investment options somewhat curtailed, the core strengths that define its prosperity remain unwavering. With a seasoned team of investors steering the ship, expect Berkshire to chart a course that outpaces the market in the forthcoming years.
BRK.B data by YCharts
Is Berkshire Hathaway Stock Still a Prime Investment?
Whilst Berkshire’s portfolio seems set for continued success, the question looms whether its stock presents a favorable buy opportunity. The stock’s allure may be tarnished if it proves overpriced, leading investors to overpay and dampen their returns.
Assessing Berkshire’s valuation poses a daunting challenge, given a significant portion of its worth lies in privately held businesses, complicating valuation estimates. A straightforward metric to evaluate the current worth of Berkshire is the price-to-book ratio, shedding light on the market value assigned to its assets. At present, Berkshire’s shares boast a price-to-book ratio of 1.6, slightly surpassing its historical average. On a relative scale, Berkshire’s stock isn’t a steal compared to previous periods, yet remains reasonably priced without extravagant premiums.
This assessment gains significance from Berkshire’s extensive buyback initiatives in recent years, which, while advantageous to shareholders by enhancing value, leads to a decline in the company’s book value. This disparity accentuates the distinction between accounting value and genuine worth.
Overall, is Berkshire Hathaway stock still a prudent investment choice after the passage of time? Absolutely. The company’s foundation remains robust, promising sustained excellence, and while not a bargain, the current valuation stands as a judicious price to pay for a top-tier business entity in the market.
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Ryan Vanzo maintains no positions in the mentioned stocks. The Motley Fool endorses and holds positions in Apple and Berkshire Hathaway. The Motley Fool upholds a transparent disclosure policy.
The views and opinions articulated herein are solely those of the author and do not necessarily align with Nasdaq, Inc.
