Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) has evolved quite a bit since Warren Buffett took control of the company more than 50 years ago. What started as a struggling textile manufacturer has grown into an insurance-based conglomerate with more than 60 subsidiary businesses and a widely followed stock portfolio worth more than $200 billion.
However, with Buffett set to turn 89 in 2019, it's important for investors to realize that the Oracle of Omaha isn't going to be calling the shots forever. Fortunately, he's not the only good reason to invest in Berkshire Hathaway for the long haul. With that in mind, here are 10 of the reasons why I own Berkshire in my personal stock portfolio and why I think all American investors would be wise to consider adding it to theirs.
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1. A collection of "forever" businesses
If you're looking for a stock to hold forever, you need to make sure the underlying business will still exist in 25, 50, or even 100 years. For example, the banking business will always exist, because people will always need a secure place to keep their money and borrow for their financial needs.
Berkshire is even better -- a collection of businesses in forever industries. Berkshire's portfolio is filled with insurance companies, homebuilders, furniture retailers, and other businesses that will stand the test of time. Even most of its major stock holdings are in forever businesses -- in fact, more than 40% of Berkshire's stock portfolio is made up of banks.
2. That massive stock portfolio
Speaking of the stock portfolio, Berkshire's is a massive $203 billion collection of some of the highest-quality companies around. Berkshire's largest stock positions include Apple, Bank of America, Wells Fargo, American Express, and Coca-Cola, just to name a few. In other words, an investment in Berkshire allows you to buy a piece of an excellent portfolio with dozens of stocks, most of which were hand-selected by Buffett himself.
3. Ted and Todd
Ted Weschler and Todd Combs are Buffett's two stock-picking lieutenants. Both men have been responsible for an increasingly large amount of Berkshire's capital over the past few years and are expected to take the reins of Berkshire's investment portfolio after Buffett is no longer in charge. And if the early results are any indicator, they look like the right people for the job. In fact, Weschler was reportedly behind Berkshire's initial 2016 investment in Apple, and despite the recent pullback, the stock has performed very well since then.
4. Great managers ready to take the lead
While Ted and Todd are set to take over the stock portfolio eventually, Berkshire also has two great leaders ready to assume control of the rest of the company's operations. Vice Chairmen Ajit Jain, who heads Berkshire's insurance operations, and Greg Abel, who heads all other subsidiary businesses, both have outstanding track records of creating shareholder value. While we don't know which is next in line for the CEO job, either should be able to keep the Berkshire magic alive and well for the foreseeable future.
5. Tons of cash at all times
Berkshire Hathaway keeps lots of cash on hand at all times. Buffett mandates a minimum of $20 billion, but lately there has been much more (more than $100 billion at the end of the third quarter). This not only allows the company to continuously be on the lookout for attractive investment opportunities but also provides a margin of safety in case profits drop substantially. After all, a company with billions of dollars in the bank and effectively no debt won't have trouble paying its bills, no matter what the economy does.
6. Companies want to be acquired by Berkshire
From an acquisition standpoint, Berkshire has a key advantage over its competitors. Not only does the company have tons of buying power and a fantastic reputation, but Berkshire tends to generally leave acquired companies alone, as far as management and general structure goes. This makes Berkshire a more desirable suitor than other potential acquirers in many cases and allows Berkshire to negotiate more favorable deals.
7. Berkshire thrives during the tough times
To be perfectly clear here, I'm not saying that Berkshire's stock performs well during rough market conditions. Berkshire's stock dropped during the financial crisis, and if a similar panic hits the markets, I'd expect the same.
However, Berkshire tends to do very well during such times from a business perspective. Not only are most of its subsidiary businesses quite recession resistant, but its cash on hand allows it to scoop up companies and stocks at fire-sale prices during panics. In fact, Berkshire's massive Bank of America investment originated in the aftermath of the financial crisis.
8. Free capital to invest
At its core, Berkshire is an insurance company. In addition to GEICO, Berkshire owns a massive reinsurance operation.
The general business model of insurers isn't necessarily to make a ton of money from collecting premiums from customers. Rather, the money is typically made by investing the premiums from the time they are paid in until the time they are paid out for claims. Most insurers invest in rather uninteresting things like Treasury securities. Berkshire, on the other hand, uses its insurance "float" to scoop up entire companies and invest in attractively valued common stocks.
9. Warren Buffett thinks the stock is cheap right now
Berkshire's buyback policy was recently modified. Now the company can buy back shares at any time when both Buffett and Vice Chairman Charlie Munger agree it's trading at a substantial discount to its book value. Well, during the third quarter, the company bought back nearly $1 billion worth of stock at an average price of about $207. Shares are still trading for around that level, so it's fair to infer that Buffett and Munger both think shares are cheap at the current price.
10. A time-tested, market-beating investing approach
Finally, Berkshire has a unique and time-tested business model that allows it to build its intrinsic value over time. While Buffett himself has cautioned investors that the next 50 years' performance won't match the last 50, there's no reason to believe that Berkshire can't continue to produce market-beating returns over the long run.
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Matthew Frankel, CFP owns shares of American Express, Apple, Bank of America, and Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.