Investing in Berkshire Hathaway

Feb 23, 2008 by

Why Not Berkshire Hathaway?

I used to be quite ambivalent towards Berkshire Hathaway, but I’ve recently decided that it is worth consideration. I’ve never worried about the soundness of Warren Buffet’s investment decisions. Instead, I’ve worried about his health. After all, he is a 77 year old man, whose favorite restaurant is Gorat’s Steakhouse, and whose favorite beverage is Cherry Coke. It is also not clear that he consumes either item in moderation. But, I’ve decided to throw caution to the wind, and give him a chance.

Why Berkshire Hathaway?

Berkshire Hathaway is special in that it is an American chaebol, a type of large conglomerate more often seen in Korea (Samsung is the biggest of the chaebol). In a chaebol, one company uses its collective wealth to make a series of unrelated investments. The head of the company (in this case, Buffett) has the ability to oversee the management of each of the investments. As a result, this form provides the diversification of a mutual fund, but better leadership. When you buy a mutual fund or index fund, you receive a series of separate investments in a bundle. Unfortunately, the person that picked that bundle cannot do anything to improve the performance of each of the investments. This is not so at Berkshire Hathaway; Buffett can change the leadership of his investments as he sees fit, and thus has a form of control that no mutual fund manager has. Even if he were to die, the person who replaced him would be able to exercise this form of control. Furthermore, Berkshire Hathaway can use excess cash from any of its business units to cross-subsidize other investments. Its insurance products provide a particularly large pile of cash. As a result, it has much more affordable access to capital than its competitors. Thus, there is a distinct advantage to investing in a conglomerate.

 Which Shares Should I Buy?

Unlike most companies, Berkshire Hathaway has never undergone a split. As Buffett wanted investors to be able to afford to buy shares directly, without the intervention of a money manager, he decided to create both A shares and B shares. B shares are anchored at 1/30th of the value of A shares, and are similar in every respect, except that they do not have any voting priviledges. Depending on the electronic broker that you use, the shares are listed as BRK-A and BRK-B or BRK/A and BRK/B. At the time of writing, the price of BRK-A was $139,400, and the price of BRK-B was $4,648.

1 Comment

  1. Berkshire has a nice spread over different investments.
    Don’t forget to analyze MSFT, because they are also in 1001 different investments.

    30% GLD
    10% SLV
    10% OIH
    5% BERKSHIRE
    5% MSFT
    ————-
    60% invested
    40% cash

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