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All I want for Christmas is a share of Berkshire B.
OK, it’s a pricey gift at roughly $3,600 (U.S.) a crack as we headed into December. But tapping into the genius of uber-investor Warren Buffett is worth the cost. And, anyway, the Class B shares of Buffett’s Berkshire Hathaway Corp. are a lot cheaper than the A shares, which trade at $107,600.
Mr. Buffett, for the uninitiated, is possibly the world’s most widely admired investor, not only because of the returns he has generated for Berkshire shareholders, but also because he’s a great human. There’s clarity and common-sense wisdom to his talk about investing that is too rarely heard from the investment industry, plus there’s the $31-billion (U.S.) in Berkshire shares that he donated to charity recently. This is just the sort of fellow I want running some of my money.
That’s the real reason for owning Berkshire Hathaway shares. They’re basically a shell that holds all the various businesses that Mr. Buffett has judged to be worthy of his investment dollars. There are close to four dozen Berkshire subsidiary companies, including household names like Dairy Queen, Fruit of the Loom and Benjamin Moore. Other holdings represent an eclectic mix of companies like Pampered Chef, which makes kitchen equipment; Johns Manville, which makes roofing and insulation products; GEICO Auto Insurance and Clayton Homes, a builder. Berkshire Hathaway also owns significant minority stakes in companies like Coca Cola., American Express, Anheuser Busch and Moody’s.
How do all these parts come together? In a word, nicely. Over the past five years, Berkshire B shares have delivered a cumulative gain of 59 per cent, while the S&P 500 stock index made 22 per cent. Interestingly, though, Berkshire B shares have underperformed the S&P 500 a little bit over the past three years. This suggests Berkshire shares have a bit of catching up to do.
In fact, Berkshire B stock was already up 22 per cent through the first 11 months or so of 2006. Could there be more to come? Arguably, yes. One of the reasons why Berkshire shares have underperformed the index in the past three-year period was that they endured a mild sell off that occurred after Hurricane Katrina struck New Orleans in late August, 2005. Berkshire has extensive interests in insurance, and its total loss as a result of Katrina and other storms in 2005 cost it about $3.5-billion (U.S.). Berkshire shares are now playing catch-up, and they’re benefiting from toward big, brand-name blue chips that have helped the Dow Jones industrial average outperform the broader S&P 500 lately.
Berkshire Hathaway is a company you can feel good about owning for reasons that go beyond returns. Just check out the “owner’s manual” for Berkshire shareholders that is posted on the firm’s website (www.berkshirehathaway.com). It’s basically a manifesto for a common-sense, investor-focused approach to managing money. Mr. Buffett says, among other things, that he will use debt conservatively, that he will not pursue growth for growth’s sake and that stock market declines are the friend of Berkshire shareholders because they make it possible for the firm to purchase businesses on the cheap. Mr. Buffett also talks about how he and his partner, Berkshire vice-chairman Charlie Munger, have almost all their wealth tied up in Berkshire shares.
One negative that always sticks to Berkshire Hathaway is the uncertainty over what’s ahead for the company after the retirement or death of Mr. Buffett, who is 76. Mr. Buffett has picked a successor from among current Berkshire executives, though this person hasn’t been named. Meantime, Mr. Buffett continues to say whenever asked about his health that he “feels terrific.” I would, too, if someone gave me a share of this great company as a present.
Rob Carrick has been writing about personal finance, business and economics for more than 12 years.