In this topsy-turvy year of big swoons and marginal gains, many investors may be wondering what stocks to buy. If you believe imitation is the sincerest form of flattery, you might want to consider Bill Gates’ only transaction in the third quarter. Out of his 19-stock portfolio, he only added depth to one stock in the quarter: Berkshire Hathaway Inc. (NYSE:BRK-B). Is BRK stock something investors should consider adding to their own portfolios or is it better to leave Berkshire to the billionaires?
Berkshire Hathaway Stock Isn’t Just for Billionaires
If you’re wondering what stocks to buy and you’re tired of listening to the ranting, talking heads on TV who never reveal their tax returns to you, you might want to take cues from people like Bill Gates.
With a net worth of around $80.0 billion, Bill Gates has a solid portfolio of 19 stocks. If you really, really do want to invest like Bill Gates, you’d have to pick up shares of Berkshire Hathaway Inc., Canadian National Railway Company (NYSE:CNI), Waste Management, Inc. (NYSE:WM), Wal-Mart Stores, Inc. (NYSE:WMT), and United Parcel Service, Inc. (NYSE:UPS), for example—all of which are in his top 10 holdings. (Source: “Form 13-F Q3” and “Form 13-F Q2,” Securities & Exchange Commission, last accessed December 1, 2015.)
During the third quarter, Gates left his portfolio mostly alone. Save for one buy and one sell. On the buy side, Gates purchased an additional 10.75 million of Berkshire Hathaway class B shares at an estimated $1.47 billion (around $137.00 per share). This raised his stake in the company by 15.6%, making him the biggest shareholder. As such, Gates, who also sits on the board of directors of Berkshire Hathaway, now holds 79.38 million class B shares of BRK, which is currently trading at around $135.00 per share. That’s a much easier price for the average investor to stomach than the class A shares, which are trading hands at $202,800 each.
Should You Add Berkshire to Your Portfolio?
Berkshire Hathaway holds two titles: world’s worst corporate website and the best way to diversify your portfolio. To see the former, just visit berkshirehathaway.com. As for the latter…
One of the most financially solid companies in the world with the best leadership team, Berkshire Hathaway is a great way to diversify your portfolio. Some of the company’s holdings include Benjamin Moore & Co., Business Wire, Fruit of the Loom, GEICO Auto Insurance, Heinz, Dairy Queen, Jordan’s Furniture, Pampered Chef, Precision Steel Warehouse, RC Willey Home Furnishings, See’s Candies, Shaw Industries, United States Liability Insurance Group, and XTRA Corporation. (Source: “Subsidiary Companies,” Berkshire Hathaway web site, last accessed December 1, 2015.)
What can you attribute Buffett’s success to? His first rule of investing, the ever-complicated never lose money. It sounds so easy, and it can be if you invest (buy) in the same kinds of companies Buffett does. That doesn’t include risky ventures. It means snapping up big companies with competitive positions and strong fundamentals.
Through it all, Berkshire Hathaway has managed to reward buy-and-hold investors. While the company’s share price is down more than 10% this year, it’s up almost 200% since the markets bottomed in March 2009. It’s also up roughly 35% over its late 2007, pre-recession highs.
Chart courtesy of www.StockCharts.com
Despite being down year-to-date, Bill Gates clearly sees that the company is trading at a bargain. I can’t imagine he’d plunk down $1.4 billion in the third quarter just for show. Some good news for BRK stockholders: his intuition may have been right on the money.
In its third quarter (ended September 30), Berkshire Hathaway reported record earnings of $9.4 billion, or $5,737 per class A share, a 104% increase over the $4.6 billion, or $2,811 per class A share, recorded in the same prior-year period. At the end of the third quarter, Berkshire Hathaway had $66.26 billion in cash. (Source: “Berkshire Hathaway Third Quarter Results,” Berkshire Hathaway web site, November 6, 2015.)
Yes, Berkshire Hathaway stock is down this year. But so, too, is the broader market and not every year can be a winner. Admittedly, most years are positive when it comes to BRK stock. Regardless, all is well, since Berkshire Hathaway isn’t a day trader’s dream.
It’s the perfect stock for long-term investors, whether you’re an average American investor or a pal of Bill Gates looking to make money. At current levels, BRK stock looks attractive. (Please note that this is not a buy recommendation, but rather an example of the kind of opportunity long-term investors can look for.)