Most investors know that Berkshire Hathaway(NYSE: BRK. A)(NYSE: BRK.B) has been one of the best-performing investments of all time. Its key to success has been to invest consistently, holding for years or even decades at a time.
But Berkshire's run is far from over. And right now, there are two exciting reasons nearly every investor should consider jumping into this legendary stock.
1. Berkshire has a permanent competitive advantage
Warren Buffett acquired Berkshire Hathaway back in 1965. Over the first few decades of operation, the company soared in value. In the 1980s, for example, Berkshire stock rose in value by at least 30% most years, with annual returns reaching as high as 90%.
Even though Berkshire's biggest days of growth are behind it, the shares have still performed quite well over more recent decades. During the past 30 years, for instance, Berkshire's total return has greatly outperformed that of the S&P 500 index. Even over just the past three years, Berkshire stock has risen by roughly 60%, besting the S&P 500's return of just 38% over the same time period.
What has allowed Berkshire stock to beat the market again and again, even as its valuation has soared to nearly $1 trillion? The biggest key has been Buffett's investing prowess. Buffett and his investing team have repeatedly invested shareholder capital successfully, whether by buying shares of a publicly traded company, acquiring a private company, or simply buying back Berkshire's own stock.
But there's another advantage that Berkshire has that few other investments offer: the advantage of permanent capital. That is, Berkshire has a pool of capital that it can invest regardless of market conditions. During the 2008 financial crisis, for example, it was able to spend billions of dollars on blue chip companies at discounts simple because so many other competing pools of capital had already dried up.
This permanent capital is generated by Berkshire's insurance businesses -- an industry that doesn't necessarily see demand plummet during recessions or bear markets. While underwriting profits may not be very high during certain market cycles, insurers provide a steady stream of investable cash because premiums are paid up front while claims are paid out after the fact. Many other investment vehicles have copied this business model in recent years, but it has remained a durable competitive advantage for Berkshire, especially when paired with Buffett's investment acumen.
2. Berkshire makes saving money fun
Diverting more cash that could be used for lifestyle expenses into your investment account is not always fun, but it's a wise long-term decision. Investing in Berkshire can eliminate some of the friction involved in upping your savings rate.
First, every time you buy more Berkshire stock, you know you're betting on one of the most successful investment vehicles in history. Putting more money to work in the market is significantly more fun when you have the confidence that these investments will match or even outpace the overall market's returns.
Second, by buying shares of Berkshire, you become a partner in one of America's most iconic businesses. You quite literally become an investing partner with Buffett and the rest of this team. Whenever they make a move, so are you. Except in this case, they're doing all of the groundwork for you, while you sit back and enjoy life. If they see opportunities in a certain industry or region of the world, Buffett and company are empowered to invest your money where it has the best chance of growing. Whereas with other investments, your capital may be limited to a certain industry or geography.
In a nutshell, investing in Berkshire can be more fun than nearly any other investment vehicle. Who wouldn't want to be investment partners with Warren Buffett? And any trick you can use to up your savings rate is nearly as important as choosing the right investment. With Berkshire, you can accomplish both, making it an attractive choice for nearly every investor.
Should you invest $1,000 in Berkshire Hathaway right now?
Before you buy stock in Berkshire Hathaway, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Berkshire Hathaway wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $826,069!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
