How Risky Is Berkshire Hathaway?

Some organizations experience frequent changes in leadership, and roughly 50 CEOs step down from S&P 500 companies every year. In those cases, the relationship between the brand and the C-Suite is weak.

Berkshire Hathaway is different.

Warren Buffett, widely considered one of the best investors in the world, has been in charge of the company since 1965. He built it up from a struggling textile manufacturer to a massive holding company with dozens of subsidiaries and a $340 billion investment portfolio.

With Buffett at the helm, Berkshire Hathaway delivered returns of 3,787,464 percent from 1965 to 2022. That’s a compound annual growth rate of 19.8 percent. The S&P 500’s annualized returns for the same period came in just under 10 percent per year – or a total of 24,708 percent for the entire period.

Does that mean Berkshire Hathaway stock is a buy? Is there a guarantee that the exceptional returns will continue? How risky is Berkshire Hathaway stock, really, and what will happen when Warren Buffett is no longer running the company?

How Safe Is Berkshire Hathaway?

Warren Buffett is a value investor, which means he focuses on buying quality companies at bargain prices. The theory is that eventually the stock’s price will catch up with the company’s intrinsic value, which leads to impressive returns on the initial investment.

This method is widely considered a safer alternative to growth investing, as growth strategies prioritize emerging businesses with considerable growth potential. That potential doesn’t always materialize, so portfolios made up of growth stocks carry higher risk and tend to experience more volatility.

From that perspective, Berkshire Hathaway is widely considered a relatively safe stock. Certainly, there are no guarantees with any investment, but Warren Buffett has proven again and again that his ability to identify which stocks will go up is unusually accurate.

How Risky Is Berkshire Hathaway?

Berkshire Hathaway stock has remarkable long-term returns, but that doesn’t mean it beats the market every year. In fact, when tech stocks went up in 2020 and 2021, they pulled the rest of the market up with them. Since the Berkshire Hathaway portfolio is light on emerging technologies, its performance was comparatively poor during those years. That fact prompted some analysts to question whether Buffett’s methods were obsolete.

The naysayers were proven wrong by the end of 2022 when the bottom fell out of the tech sector. Berkshire Hathaway’s portfolio continued at its steady growth rate while 2021’s tech millionaires saw their portfolios decline between 30 and 80 percent.

A handful of the tech investors got out before their losses erased their gains, and those investors might still consider Warren Buffett’s focus on established companies with proven track records to be outdated. However, the rest of the financial world has embraced Berkshire Hathaway stock as a stable, lower-risk opportunity for building wealth.

Is Berkshire Hathaway a Safe Long-Term Investment?

The beauty of Warren Buffett’s strategy – and by extension, Berkshire Hathaway’s strategy – is that it always looks ahead. Not to short-term or medium-term potential, but to the long-term and very long-term.

One of the most often-repeated Warren Buffett quotes is, “Our favorite holding period is forever.” He has studied the stock market for more than 80 years, and in that time he has learned that overnight success is impossible to hold onto. Building wealth requires years of consistent results. That’s only possible when companies have a strong leadership team, a competitive product or service, and financial stability.

That’s not to say that Berkshire Hathaway ignores technological advances or stays away from companies in the tech sector. Apple stock makes up more than 44 percent of Berkshire Hathaway’s portfolio, and Berkshire Hathaway has positions in tech companies like Activision Blizzard, Amazon, BYD, Nu Holdings, Snowflake, and Taiwan Semiconductor.

Every one of these plays a critical role in the future of technology. The difference is that Buffett waited to ensure they were sound investments rather than jumping on board with every promising startup.

Does Berkshire Hathaway Have a Future?

Warren Buffett and Berkshire Hathaway are virtually one and the same in the minds of shareholders, causing many to question whether Berkshire Hathaway has a future. After all, Warren Buffett is 92, and his closest advisor, Berkshire Hathaway Vice Chairman Charlie Munger, is 99. What will happen when they can’t lead the organization?

Buffett once joked that he doesn’t plan to retire until five years after his death, but that doesn’t mean he has ignored succession planning.

In 2021, Buffett assured shareholders that he carefully handpicked their next CEO, Greg Abel – a long-time Berkshire Hathaway executive who has been with the company since Berkshire Hathaway acquired MidAmerican Energy Holdings in 2000.

Abel is closely aligned with Warren Buffett’s investing philosophy, and by all accounts, he is an astute businessman with a brilliant mind and innovative ideas. Buffett promoted Abel to his current role as Vice Chairman of Berkshire Hathaway’s non-insurance businesses, and Buffett has spent years working side-by-side with Abel to ensure his company – and Berkshire Hathaway’s shareholders – will be in good hands when Abel takes over.

The care that went into selection of Buffett’s successor suggests that despite the inevitability of change, one thing will stay the same: Berkshire Hathaway will continue to thrive.

How High Will Berkshire Hathaway Go?

Berkshire Hathaway stock is by far the most expensive stock in the world, priced at more than $470,000 per share.

Buffett has long said he won’t split the stock despite its astonishingly high price, because the high price tends to attract like-minded investors – those that buy and hold long-term. If that remains true, there’s no telling how high Berkshire Hathaway stock will go.

The good news is that average investors can still buy Berkshire Hathaway stock, even if they don’t have multi-million dollar portfolios. The six-figure price applies to Berkshire Hathaway Class A shares. Class B shares are currently trading at just over $300 per share, and their performance is closely aligned with their costlier counterparts.

Is It Good To Invest In Berkshire Hathaway?

Berkshire Hathaway stock is a buy for investors who appreciate Warren Buffett’s value-based approach and prefer to leave the research to Buffett and his team. Though it is a traditional stock, Berkshire Hathaway offers many of the benefits of actively-managed mutual funds without the fees because the company has a large stock portfolio of its own.

Each share of Berkshire Hathaway gives shareholders instant diversification through the combination of Berkshire Hathaway’s stock market investments and its diverse mix of profitable subsidiaries. While the company does have substantial exposure to the financial services industry, it also owns well-known brands like Dairy Queen, Fruit of the Loom, and See’s Candies.

In other words, it is good to invest in Berkshire Hathaway to gain Warren Buffett’s expertise in real time. Warren Buffett knows how to build lasting wealth, and when he is gone, Berkshire Hathaway will continue to apply his principles.

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