It's not cheap to invest with Buffett today.
Legendary investor Warren Buffett doesn't invest on behalf of his clients, but on behalf of his holding company. berkshire hathaway (BRK.A 1.18%) (BRK.B 1.30%) It's the next best thing. After decades of acquiring shares in private and public companies, this giant publicly traded company has become one of the largest in the world.
Buffett carefully built Berkshire Hathaway to survive long after he left, maintaining a long-term vision for the company and helping the stock achieve its best performance ever. S&P500 For many years. But this behemoth, worth nearly $900 billion, can't be bought at any price.
Price will probably have a lot to do with investment returns over the next few years. Here's what you need to know:
Berkshire is built forever
Berkshire Hathaway is a truly special company. This is a holding company that doesn't really do anything other than maintain ownership of all its subsidiaries and allocate capital. Berkshire is a machine with many parts. Its part consists of the following business units:
- insurance underwriting
- insurance investment income
- railway
- utilities and energy
- Other businesses/miscellaneous goods
All of these divisions collectively contribute to Berkshire's bottom line, and Buffett and management distribute profits based on the long-term best interests of shareholders.
Berkshire Hathaway owns dozens of companies and a stock portfolio of about $350 billion. It is well known for its large investment in. apple Long-term holding stocks such as coca cola and american express. All told, his portfolio alone is worth more than $350 billion.
This diversification and massive scale make Berkshire a resilient company that can withstand whatever economic conditions throw at it. Over the years, this has included financial crises, multiple recessions, wars, and pandemics.
If that's not enough, Berkshire has piled up a lot of cash on its books for rainy days and big investment opportunities. It currently has $167 billion on its books, which alone makes it one of the world's largest companies by market capitalization. It's no exaggeration to say that you can buy and hold Berkshire Hathaway indefinitely without losing any sleep.
Why value Berkshire at book value?
Valuing stocks can be difficult because there are so many moving parts. Buffett himself has said that GAAP income is virtually useless because of all the non-cash items that can affect the reported numbers. So instead, consider using Berkshire's book value to value the stock.
A company's book value is its total assets minus its liabilities. What remains is book value, also known as stockholders' equity. The value of a company after all its bills and debts have been paid.
Book value is a useful metric when valuing Berkshire because it makes it easy to get a complete picture of the business and add up the cumulative value it has generated.
Is Berkshire Hathaway a buy today?
Specifically, investors can see Berkshire's price-to-book multiple, which shows how much they're paying for a company's stock. For years, Berkshire has traded at about 1.4 times book value. It currently trades at 1.5x, near the high end of its 10-year range.
BRK.B Price vs. Book Value Data by YCharts
What's interesting is that, barring severe market events like the 2020 pandemic crash, Berkshire has traded within a fairly narrow range. The company's credibility means investors who already own the stock should keep it hidden, as the stock's valuation isn't dire enough to warrant a sale.
But if you're looking from the outside looking in, there's no need to rush into buying the stock. Stocks may endure some cooling. Strive to buy stocks that are close to Berkshire's long-term average.
American Express is an advertising partner of The Ascent, a Motley Fool company. Justin Pope has no position in any stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.
