3 Compelling Reasons to Consider Investing in Berkshire Hathaway Stock

As we approach the end of 2024, few investors might consider buying Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) class A shares. The primary reason: the astonishing price of a single class A share is over $715,000. However, for those who are interested in investing in this influential company, class B shares are available for under $500.

For long-term investors, buying shares in Berkshire Hathaway can be a wise decision. Here are three compelling reasons to consider investing in this iconic company.

1. Leadership of Warren Buffett

While some investors advocate for focusing on the management behind a company, it’s hard to dismiss the remarkable track record of Berkshire Hathaway's chairman and CEO, Warren Buffett.

Buffett is widely regarded as one of the greatest investors in history. Between 1964, when he took over Berkshire Hathaway, and 2023, the stock experienced an incredible overall gain of 4,384,748%, vastly outperforming the S&P 500 during the same period. This trend of outperformance has continued into 2024, with Berkshire shares once again outperforming the broader market.

Beyond his impressive track record, Buffett's investing philosophy significantly contributes to the long-term success of Berkshire Hathaway. His annual letters to shareholders are insightful, offering valuable guidance on business management and investment strategies.

While there will eventually come a time when Buffett is not at the helm, his impact on the company will likely continue to guide its success far into the future.

2. Focus on Sustainable Businesses

Investing in Berkshire Hathaway means you’re not only counting on leadership; you also benefit from a diverse portfolio of high-quality businesses. Berkshire Hathaway consists of nearly 70 subsidiaries, many of which are leaders in their industries. Key subsidiaries include BNSF Railway, Geico Insurance, and Berkshire Hathaway Energy.

In addition to the subsidiaries, investing in Berkshire Hathaway gives you exposure to a wide range of publicly traded companies. Some of the company’s significant stakes include Apple, American Express, Bank of America, and Coca-Cola. All these companies are well-established with solid growth prospects, making Berkshire Hathaway a strong investment.

3. Significant Cash Reserves

Typically, cash reserves might not be a primary reason to invest in a company, but Berkshire Hathaway stands out in this regard. The company currently has approximately $325.2 billion in cash, cash equivalents, and short-term investments, marking the highest cash position in its history.

This substantial cash reserve provides Berkshire's management with the ability to make strategic investments when opportunities arise, particularly during market downturns. Buffett has always adopted a cautious investment approach, preferring to invest when stock valuations are attractive compared to earnings growth over a minimum of five years. This prudent strategy has been instrumental in helping Berkshire achieve market-beating returns over time, and the current cash reserves will likely enable future smart investment decisions.

Potential Drawback of Investing in Berkshire Hathaway

Despite the strong case for buying Berkshire Hathaway stock, one primary concern is its valuation. Currently, shares are trading at 24.6 times forward earnings.

Buffett's decision not to repurchase shares in the third quarter of 2024 suggests caution regarding the company's premium valuation. Some investors may prefer to wait for a more attractive valuation before making a purchase. Nevertheless, for those with a long-term perspective, Berkshire Hathaway remains a solid investment choice.

Investment, Buffett, Berkshire