Invest in Warren Buffett’s business to purchase Berkshire Hathaway stock
Berkshire Hathaway stands as a global giant, boasting a diverse portfolio spanning insurance, energy, confectionery, and fast food. Renowned as the holding company of investment luminary Warren Buffett, Berkshire Hathaway has delivered impressive returns for shareholders under his leadership for over half a century.
For those contemplating investing in Berkshire Hathaway shares, here’s a guide on how to proceed and key considerations to bear in mind before making a decision.
1. Analyze Berkshire Hathaway and its financials
Analyzing a company’s competitive standing and financials is often the most challenging aspect of purchasing its stock, yet it’s also the most crucial. A good starting point is the company’s Form 10-K, its annual report mandated by the Securities and Exchange Commission (SEC) for all publicly traded entities.
The 10-K furnishes essential insights into the company’s:
- Revenue streams and earnings
- Assets and liabilities
- Profitability trends over time
- Competitive environment
- Various risks confronting the business
While the annual report offers valuable initial information, delving deeper is advisable. Exploring competitors’ strategies is vital for gaining a broader industry perspective.
Consider Berkshire Hathaway as an example: It operates across diverse sectors, notably insurance via GEICO and other subsidiaries. It’s also a significant player in utilities and owns a railroad, among numerous other ventures. Given its expansive scope, tracking Berkshire’s performance can be challenging. Additionally, Berkshire holds a substantial portfolio comprising major stocks like American Express, Bank of America, Coca-Cola, and Apple, each warranting its own analysis.
Warren Buffett’s annual shareholder letters are invaluable resources for understanding Berkshire’s diverse enterprises. Accessible and insightful, these letters, available on the company’s website dating back to 1977, offer a comprehensive view of Berkshire Hathaway’s operations.
2. Does Berkshire Hathaway make sense in your portfolio?
Berkshire Hathaway stands as a stalwart among blue-chip stocks, boasting a robust history of market outperformance. Central to its operations is its formidable insurance segment, and Warren Buffett’s adept investment strategies with the company’s surplus cash have garnered admiration. With a diversified portfolio of successful enterprises, Berkshire Hathaway may complement many investment portfolios, albeit not all, given its lack of shareholder dividends.
While Berkshire’s Class A shares draw attention for their lofty price tags, the company offers Class B shares with equivalent proportional economic rights but at a lower price point and with fewer voting privileges.
Consider the following queries when evaluating Berkshire Hathaway:
- Do you grasp the intricacies of the business and its future prospects?
- Can you commit to ongoing analysis of the company and its industry amid its expansion?
- Given the potential volatility of stocks, are you prepared to weather downturns or capitalize on opportunities to increase your holdings?
- Do you have a grasp of the company’s intrinsic value and how it aligns with the current market valuation?
- Given Berkshire’s non-dividend-paying policy, do you prioritize dividend income in your stock investments?
3. How much can you afford to invest?
Determining how much you can invest in Berkshire Hathaway depends largely on your individual financial circumstances. Given the potential volatility of stocks, it’s advisable to allocate funds that you can afford to leave invested for a minimum of three to five years. This timeframe allows your investment to weather market fluctuations and potentially realize gains over the long term.
Maintaining a commitment to holding the stock for three to five years is crucial to avoid selling at a low point and missing out on future gains. Diversifying your portfolio is prudent, with individual stock positions typically kept between 3 and 5 percent to mitigate overexposure to any single investment’s risk. Adjustments may be made based on the level of business risk associated with the stock.
Furthermore, consider adopting a strategy of periodic additions to your investment over time, rather than a one-time lump sum. This approach can help you capitalize on potential opportunities and manage risk effectively.
4. Open a brokerage account
Setting up a brokerage account may seem daunting, but the process is straightforward and can be completed in around 15 minutes.
First, choose a broker that aligns with your investment needs. Consider factors such as trading frequency, level of service, research offerings, and cost. Some brokers specialize in commission-free trading for funds, which may be suitable if you primarily invest in stocks and funds.
Once you’ve selected a broker, opening an account is typically done online and requires funding to purchase Berkshire Hathaway stock. As of May 2024, Berkshire’s Class B shares trade around $414 per share, making it impractical to buy whole shares for some investors. Fortunately, brokers like Charles Schwab and Fidelity offer fractional shares, allowing you to invest with small amounts of money.
5. Buy Berkshire Hathaway stock
After opening and funding your brokerage account, you can proceed to place your order for Berkshire Hathaway stock. Utilize the company’s ticker symbol – BRK-B for the Class B stock – when entering your order.
Most brokers feature a “trade ticket” on their platform, typically found at the bottom of the page, where you can input your order details. On the order form, specify the symbol and the number of shares you wish to purchase, or the amount you intend to invest if buying fractional shares. Next, select the order type: market or limit. A market order will execute at the current market price, while a limit order will only execute if the stock reaches a price you specify.
If you’re purchasing only a few shares, opting for a market order is often the most straightforward approach. While you may pay slightly more with a market order, this minimal difference is unlikely to significantly impact long-term performance if the stock continues to perform well.
In Conclusion
Investing in stocks is an exhilarating venture, but it’s essential to recognize that success typically unfolds gradually. Investors are wise to adopt a long-term outlook on their investments, and dollar-cost averaging can be a valuable strategy for those committed to holding a stock for the long haul.
Through dollar-cost averaging, investors consistently contribute a fixed amount of money to their investment position over time. This approach proves advantageous during market downturns, as it enables investors to acquire more shares when stock prices decline. Since even high-performing stocks experience periodic dips, this strategy can lead to lower average purchase prices and ultimately higher overall returns.