Why Is Berkshire Hathaway Stock So High? Berkshire Hathaway (BRK.A) is practically synonymous with the famous investor Warren Buffett.
Often referred to as the Oracle of Omaha, Buffett built a reputation on making value plays and cashing in. His is a slow-but-steady approach.
While Warren Buffett doesn’t makestock predictions, many investors follow his activities and trying to gain some insight in sight in the markets based on his activities – but there is another strategy. Buying into Berkshire Hathaway lets investors tap into Buffett’s investment prowess.
Here’s what you need to know.
Is Berkshire Hathaway A Good Stock?
Berkshire Hathaway is a holding company. It owns several subsidiaries, most of which are insurance-based businesses. GEICO is one example.
One of the side effects of insurance is that the company collects funds from policyholders. The company has to maintain a certain minimum amount of cash to cover claims, but the balance is called the “Float” and it can be invested. Warren Buffett is the man at the helm overseeing these investments.
“Money is made in investments by investing and by owning good companies for long periods of time. If [you] buy good companies, buy them over time, [you’re] going to do fine 10, 20, 30 years from now,” saidWarren Buffett.
“If [you’re] trying to buy and sell stocks, and worry when they go down a little bit … and think [you] should maybe sell them when the go up, [you’re] not going to have very good results.”
Warren Buffett and his right-hand man, Charlie Munger, have found enough success to earn respect from the investing world, but they have made missteps along the way.
Like any sound investment strategy, they maintained a diversified portfolio of stocks and recovered well from any issues. Berkshire Hathaway tends to pick value companies and hold on to those positions.
Why Is Berkshire Hathaway So Expensive?
Berkshire Hathaway is so expensive because the stock has never been split. Warren Buffett refuses.
In a biography,Buffett explained his reasoning, saying “I don’t want anybody buying Berkshire thinking that they can make a lot of money fast.” However, that is the company’s class A stock. The current share price is around$300,000for one share.
Berkshire Hathaway does offerclass B sharesfor investors (BRK.B). These are closer to $200 per share. They do come with fewershareholder voting rights, but there is a tradeoff.
Class B shares can be inherited without the recipient paying a gift tax. If you don’t care about voting rights, buying Class B stock in Berkshire Hathaway is a credible alternative to buying Class A stock.
What Was Berkshire Hathaway IPO Price?
Berkshire Hathaway has been around a long time, and its shares have been available for almost as long. Warren Buffett bought his first shares of the company in 1962 for$7.50 each.
By May 1965, he had bought a majority stake in the company and changed the management. After 15 years, Berkshire Hathaway had an initial public offering (IPO).
The company’s Class A stocks debuted onMarch 16, 1980at $290, while Berkshire Hathaway’s Class B IPO was onMay 9, 1996at $22.20.
Is Berkshire Hathaway Stock Overvalued?
Berkshire Hathaway gets a ton of attention for its investments. The company owns majority stakes in a freight railroad and several energy utilities. Some outlets even publishhighlights from the company’s 13Fso investors can see which stocks are getting a nod from the investment giant. Some highlights include:
–American Express
–Apple
–Bank of America
–Charter Communications
–Coca-Cola
–General Motors
–
–Kraft Heinz
–Mastercard
–PNC
–
–Visa
As you can see from the list, Berkshire Hathaway invests in a variety of companies, but they do share certain characteristics. These stocks tend to be mature companies, and they are staples in American life.
Recently, Berkshire Hathaway has made some big moves. At the company’sannual meeting, it announced that it had sold off its airline holdings. Before that divestment, Berkshire Hathaway owned stakes of 9% in United Airlines, 10% of American Airlines, 10% of Southwest Airlines, and 11% in Delta.
Of the sell-off, Buffett had this to say: “We made that decision in terms of the airline business. We took money out of the business basically even at a substantial loss.
We will not fund a company that… where we think that it is going to chew up money in the future.” The company also bought$1.2 billion in Bank of Americastock over the last week in July. but most of its portfolio remains unchanged otherwise.
Why Is Berkshire Hathaway Stock So High: The Bottom Line
Berkshire Hathaway has historically been a successful investment for many long-term value investors, but past performance does not predict future returns.
The company is facing somerisk factorsthat no investor should ignore. Chief amongst them is the COVID Pandemic. It is likely to have a significant impact on Berkshire Hathaway because it causes poor economic conditions and consumer conservatism – but that’s not to say that Berkshire Hathaway will be any more impacted than its peers.
After all, the company is famous for its conservative investment strategy and so far, it is paying off. Berkshire Hathaway has beenoutperformingmany of its competitors as the COVID Pandemic continues.
Investors looking to follow Buffett should take a look at Berkshire Hathaway’s holdings and decide whether they see enough upside potential in their investment timeframe.
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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
