Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) shares have made some long-term investors very rich over the past few decades. It’s an American multinational conglomerate holding company headquartered in Omaha, Nebraska, and managed by the so-called Oracle of Omaha, aka Warren Buffett.
What does Berkshire Hathaway do?
You’ve probably come across Berkshire Hathaway at one point in your life. It’s a holding company for a multitude of businesses and it’s now one of the largest companies in the world, based on market capitalisation.
The firm has existed since 1839, but has only achieved notoriety in recent years. The company has been overseen since 1965 by its chairman and CEO Buffett. Nowadays, Berkshire Hathaway has a market capitalization close to $700bn!
At this point, I also need to note that there are two options for buying Berkshire Hathaway stock: Class A stock (BRK-A) and Class B stock (BRK-B). The main difference is the share price. Class A stock is currently valued at nearly $500,000. Class B is valued at just over $300.
Recent share performance
I wasn’t around in 1965. In fact, I’ve been investing for just over a decade. So let’s take a look at how the share price has performed in recent years.
If I had bought £500 of Berkshire Hathaway stock five years ago, I’d be a very happy investor.
Firstly, five years ago, £500 would have got me $665. And in the last five years, Berkshire Hathaway shares have soared 63%. So, today, that $665 would be worth $1,090.
But because the pound as depreciated against the dollar, today, $1,090 is worth around £900. That’s a pretty good return.
But it’s worth remembering that I wouldn’t have received any dividends in that period. Despite being a mature and stable company, Berkshire Hathaway does not pay out dividends to shareholders. Instead, the company chooses to reinvest retained earnings.
Should I buy the stock now?
Berkshire Hathaway has always looked a tempting investment. Buffett is known for investing in value stocks and focuses on finding companies that are trading at a discount to their intrinsic value.
Buffett searches for a margin of safety of around 30%. If a business doesn’t have a substantial amount of safety between the market price and the equity, he is known to be very hesitant. By applying this safety net, Berkshire Hathaway reduces the risk of losing money — an important characteristic for a holdings company.
So what about the stocks it owns? Well, who am I to question the Berkshire Hathaway portfolio? It is diverse, but Buffett likes to stick with what he knows best. Otherwise it would be hard to assess the intrinsic value of a company.
The company does not invest as frequently as its peers or funds. Instead, it takes long positions on a relatively small number of holdings — 53, in fact.
In short, I would not buy Berkshire Hathaway stock, and for one reason. And that’s the strength of the dollar. I think there are signs the dollar has peaked and the pound could appreciate in the coming years. An appreciating pound could wipe out my gains.
