Warren Buffett is one of the best known and best regarded investors in the world and is the very epitome of value investing. People admire his stock picking skills as he has many successful investments ranging from Coca-Cola (KO) from years ago to his more recent acquisition, ketchup titan H.J. Heinz. However, I am constantly amazed at how often people have tended to overlook the one stock that has made him the most money: his own company Berkshire Hathaway (BRK.A) (BRK.B). The company has been criticized for not paying dividends and being an expensive stock but the legions of loyal Buffett fans are almost fanatical in their devotion to the man and his company. Just look at the numbers. The book value has grown a staggering 586,000% from 1964 to the end of 2012, and the original Class A shares of Berkshire stock recently traded at over $160,000 per share. To be fair, you'll need to be a long-term value investor just like the man himself to appreciate the returns on his investments.
The latest in acquisitions
The company has such an enormous market capitalization that it will find it almost impossible to duplicate the best rates of return measured in percentage terms. It can, however, continue to beat the market. This is why, in recent times and in addition to large acquisitions, Berkshire Hathaway has also accomplished many small ones. For instance, it spent $2.6 billion in 2012 to acquire 26 companies to be integrated into its own existing operations. The latest is that two of its own subsidiaries have announced their own acquisitions. Columbia Insurance has agreed to pay $285 million in cash to buy Hartford Life International of the UK from property and casualty insurer The Hartford (HIG). Hartford Life International has $1.75 billion in assets under management as of March 31, 2013. Additionally, The Oriental Trading Company will acquired educational toy-maker MindWare Holdings at a price which is not been disclosed. The press release points out that MindWare has more than 1000 different products to offer and has received many awards from parenting publications and bodies.
The investment thesis
One of the biggest benefits in a Berkshire Hathaway investment is the diversification it automatically brings to your portfolio. In fact, you will get more diversification than even many mutual funds. Even other well-regarded conglomerates have nowhere near the same range of industry coverage. Among the largest bits of Berkshire are the core insurance business (GEICO is the best known), the railroad company Burlington Northern Santa Fe purchased in 2010, and its majority stake in MidAmerican Energy, which provides electric utility services as well as power-generation using a mix of conventional fuels and renewable energy. In addition, you will get exposure to consumer brands like Coca-Cola and Heinz as well as a whole range of businesses that Berkshire is comfortable with. Buffett has not hesitated to use his insurance reserves to make investments in equities he considers worthwhile rather than the more conventional bond investments that other insurers make.
After Buffett what?
Many investors are concerned that the biggest threat to the stock is the mortality of Buffett himself. They fear that the attractive investment opportunities coming the way of the company because of his personal reputation and the advantage his involvement brings will dry up once he is gone. One example of this is Goldman Sachs, which offered an attractive investment opportunity to shore up their reputation. The counter to this is that Buffett, like other responsible chief executives, has been planning the succession for some time even though nobody yet knows the details. Moreover, many of the investments are in stable and well managed companies that do not require day to day involvement. One of the advantages of long-term value investing is that the portfolio will continue to perform long after he is gone.
The bottom line
Even if the stock price declines because of the departure of Buffett, this will enhance the company's value by giving it the opportunity to buy back stock at an attractive price compared to its intrinsic value. I still believe that this is the ideal buy and hold stock for long term value investors and recommend that, if this is your investment approach, you should have no hesitation in buying Berkshire Hathaway stock.