Sell all shares and only up Berkshire Hathaway (WKN: A0YJQ2) set: Have you ever played with the idea? To be honest: Yes, I actually have. The bottom line is that Warren Buffett is one of the most talented investors who has made his money on this one stock.
He has also created a portfolio with a selective cross-section of American business. For foolish investors, this can be sufficient quality that one can benefit from in the long run.
Berkshire Hathaway is perhaps the only exception where I would consider it. Nevertheless, I would have my problems taking this step. Or at least construction sites that I would be aware of: I see three in number: management, valuation, and opportunity costs.
With Berkshire Hathaway: The Management!
Being the sole shareholder to own Berkshire Hathaway would be less of an issue for me if Warren Buffett and Charlie Munger were present for decades to come. The two star investors have clearly defined their work, it is about solid, safe, timeless and qualitative returns. With their experience, their knowledge and their way, they are very successful and the faces of this stock.
However, we do not need a crystal ball to see that changes in management are approaching. Warren Buffett and Charlie Munger are over 90, with Munger closer to 100. That means a replacement plan is likely to take effect in a few years.
With the succession plan at Berkshire Hathaway, there may be opportunities, but there may also be risks. The new management must first earn the trust, while the investment team must show that they are staying in the footsteps of Oracle of Omaha. So going all-in on the conglomerate 30 years ago would have been the safer alternative from a management perspective. Of course, looking back is always easier.
More a construction site: the assessment
A construction site for me is more the valuation when it comes to Berkshire Hathaway shares. I certainly would not buy it at any price. Warren Buffett himself describes the stock as fair to cheap with a price-to-book ratio of 1.2. But in the past, you have even bought your own shares back at a price-to-book ratio of 1.5. This means that solid, long-term returns seem to be possible up to this level.
Ideally, as an investor who wants to go all-in, you should invest significantly in the stock at a price-to-book value ratio of well below 1.5. Yet that is the case, which could speak for fundamentally solid, timeless returns if the portfolio continues to follow in Warren Buffett’s footsteps in the long run.
Berkshire Hathaway: What are the alternatives?
Warren Buffett and Berkshire Hathaway focus on profitable quality in business. It is without a doubt a great way to create solid timeless returns and it will remain so. But: There is a limit, also because of the size of the stocks that the conglomerate makes.
This means that there are smaller, more dynamic stocks with a significantly higher return potential. They also have higher risks. However, I know for myself that I would always want to invest in such stocks.
That’s why I don’t just invest in Berkshire Hathaway stock, which would still be my favorite if I just invested in one stock. However, this shows me that I should buy more again for more favorable conditions.
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Vincent owns shares in Berkshire Hathaway. The Motley Fool owns shares in and recommends Berkshire Hathaway (B shares) and recommends the following options: short January 2023 $ 200 put on Berkshire Hathaway (B shares), short January 2023 $ 265 call on Berkshire Hathaway (B shares) and long January 2023 $ 200 call on Berkshire Hathaway (B shares).