Berkshire Hathaway is one of the largest companies in the world, and it owns a wide range of businesses from insurance and energy to chocolate and fast food. It has long been known as the holding company of legendary investor Warren Buffett, and the company has generated amazing returns for investors since Buffett took the reins more than 50 years ago.
If you’re considering buying shares of Berkshire Hathaway stock, here’s how to do it and what you need to know before making the decision.
1. Analyze Berkshire Hathaway and its Financials
Analyzing a company’s competitive position and financials is probably the hardest part of buying a stock, but it’s also the most important. The best place to start is with a company’s Form 10-K, which is the annual report that all publicly traded companies must file with the SEC.
The 10-K can help you understand a lot about the company:
- how does it make money and how much
- its assets and liabilities
- its profitability trend over time
- competitive landscape
- Various risks faced by the business
- Management team and how they are incentivized
The annual report is a great first step in getting to know the company, but you’ll want to do much more than that. You will want to study what other companies are doing to compete, as it is important to have a broad perspective of the industry.
For example, Berkshire competes in a variety of industries, but it is most significantly an insurance company through GEICO and other subsidiaries. Berkshire recently struck a deal to acquire Allegheny for approximately $12 billion.
Berkshire is also a big player in the utility industry, and also owns a railroad and dozens of other businesses. Given this array, Berkshire can be a very difficult company to follow. On top of that, Berkshire has a sizeable portfolio of some of the biggest stocks in the world, including American Express, Bank of America, Coca-Cola, and Apple, and each has its own issues to analyze.
Buffett writes an annual letter to shareholders that can be extremely useful in understanding how Berkshire’s various businesses are doing. The letters are written in an accessible manner, and you can read them dating all the way back to 1977 on the company’s website.
2. Does Berkshire Hathaway Make Sense in Your Portfolio?
Berkshire Hathaway is one of the blue chip stocks of the market and has a long history of outperformance. Berkshire has a lot of power in the company’s insurance operations, and Warren Buffett has a remarkable track record of investing the company’s excess cash. With lots of well-performing businesses, Berkshire may be a good fit for many portfolios, but probably not all, since it doesn’t pay dividends to shareholders.
In addition, while Berkshire’s Class A shares get all the press for their ultra-high price, the company also has Class B shares that have similar proportional economic rights, but trade for a lower price and have fewer voting rights. There are rights.
So you might want to consider the following questions:
- Do you understand the business and its future prospects?
- Will you be able to continue analyzing the business and industry as it grows?
- Given that the stock can be volatile, would you be able to hold on dips or even buy higher?
- Do you have an idea of what the company is worth and how it compares to the current market value?
- Berkshire Doesn’t Pay a Dividend — Do You Need It in the Stock?
3. How much can you invest?
How much you can invest with Berkshire Hathaway has less to do with it than your personal financial situation. Shares can fluctuate. Therefore, to give your investments time to work, you’ll probably want to leave the money in stocks for at least three to five years. This means that you should be able to live without money for at least that long.
It’s important to commit to holding a stock for three to five years. You would hate to sell a stock when it was close to a low only to see it rebound much higher after you exited the position. By sticking to a long-term plan, you will be able to ride out the ups and downs of stocks.
If you’re investing in individual stocks, you’ll probably want to keep the percentage of a single position between 3 and 5 percent. That way you’re not heavily exposed to a single investment breaking your portfolio. If the stock has more business risk, you can choose an even lower percentage than this range.
Also, instead of just committing a lump sum to the stock, consider how you can add money to your position over time.
4. Open a brokerage account
While opening a brokerage account may seem like a daunting step, it’s actually quite easy, and you can have everything set up in 15 minutes or so.
You will want to select a broker that best meets your needs. Are you trading frequently or frequently? Do you need a higher level of service or research? Is cost the most important factor for you? If you’re buying some stocks but investing primarily in funds, many brokers specialize in offering commission-free trading for those funds.
After opening your account, you’ll want to fund it with enough money to buy Berkshire Hathaway stock. But you can take care of this step completely online, and it’s easy.
With Berkshire’s Class B shares trading for about $350 per share as of March 2022 (its Class A shares trade for about $535,000), you may not have enough money to buy the entire stock. To help with this problem, several brokers, including Charles Schwab and Fidelity, have begun offering fractional shares, allowing you to invest with only a few dollars.
5. Buy Berkshire Hathaway Stock
Once you’ve decided to buy Berkshire Hathaway stock and you’ve opened and funded your brokerage account, you can set your order. Use the company’s ticker symbol — BRK-B — for Class B stock when you input your order.
Most brokers have a “Trade Ticket” at the bottom of each page that you can enter your order. On the broker’s order form, you will input the symbol and how many shares you want to buy, or how much you want to invest if you are buying fractional shares. You will then enter the order type: Market or Limit. A market order will buy the stock at the current price, whereas a limit order will execute only when the stock reaches the price you specify.
If you’re only buying a few shares, you’re likely to stick with a market order. Even if you pay a little more for the market order, it will not affect the long term performance much if the stock continues to perform well.
Buying stocks can be exciting, but success won’t come overnight. Investors should take a long-term view on their investments, and if they believe in a stock for the long term, they should consider taking advantage of dollar-cost averaging.
With dollar-cost averaging, investors add a fixed amount to their positions over time, and this really helps when stocks decline, allowing them to buy more shares. High-flying stocks can depreciate from time to time, so the strategy can help you get a lower purchase price and a higher overall profit.