If Given the Choice to Purchase and Maintain a Singular Stock, This Would Be My Selection.
Some individuals prefer to take big risks with their investments. This could be acceptable with a small sum of discretionary funds, especially during one's youth. However, such strategies have a minimal chance of success, though they offer a substantial payoff potential.
On the flip side, setting up a retirement fund is generally advised to be a gradual process with a varied investment portfolio. If I had to pick just a single stock to buy and hold, it would be none other than Berkshire Hathaway (BRK.A -0.39%) (BRK.B -0.56%). The reason for this choice is that you gain access to a diverse collection of stocks managed by one of history's greatest investors, alongside a mix of diverse business operations.
Yes, Buffett is diversified
Acquiring Berkshire Hathaway stock grants you instant ownership in a range of individual stocks. Over the years, Buffet has guided the company to create the diverse portfolio the company possesses today. As per its most recent Form 13F, the company listed over 40 individual equities worth approximately $300 billion.
Some might question the need to buy Berkshire stock when they can instead invest in a blend of the overall stock market through ownership of index mutual funds or exchange-traded funds (ETFs). Interestingly, aside from its individual stocks, Berkshire also holds two different S&P 500 index ETFs in its current portfolio.
By selecting Berkshire Hathaway, you gain not only skilled full-time management and oversight, but also the company's successful investments in five Japanese industrial conglomerates, which are absent from any U.S. index. Berkshire owns a substantial stake in each of the five, including well-known names such as Mitsubishi and Mitsui. In addition to the equity portfolio, investors benefit from more than just equity exposure.
Berkshire's growing operational earnings
Regardless of its equity holdings, Berkshire holds complete ownership of various operating businesses across multiple sectors. These include Berkshire Hathaway Energy, a utility company that generates, transmits, and supplies energy, as well as North American rail operator Burlington Northern Santa Fe. Berkshire also manages other significant businesses such as its insurance and reinsurance businesses, HomeServices of America residential real estate brokerage firm, and various manufacturing and building products businesses.
Berkshire shareholders should be pleased to own these profitable businesses, as operational earnings have increased from $27.6 billion in 2021 to $30.9 billion in 2022, and $37.4 billion in 2023.
Managing expectations
This growth in earnings helps explain why Berkshire Hathaway has surpassed the S&P 500 by more than double over the past five years, also contributing to a record-high level of cash and equivalents on its balance sheet.
However, Warren Buffett and his younger investment managers, Todd Combs and Ted Weschler, currently see limited opportunities to spend much of the $325 billion cash. Berkshire's growth has become so significant that investors should maintain a realistic outlook for future returns. In the latest annual report, Buffett himself stated, "All in all, we have no chance of achieving eye-popping performance."
Nevertheless, Berkshire Hathaway remains a valuable addition to any retirement investment portfolio. Investors can adopt the same philosophy as Buffett regarding returns, with modest expectations. Buffett noted, "Nevertheless, managing Berkshire is mostly fun and always interesting." Consequently, investing in Berkshire Hathaway stock can prove to be both entertaining and rewarding.
Investing in Berkshire Hathaway stock is a way to gain access to a diverse collection of stocks managed by a renowned investor. This strategy can be beneficial for retirement planning, as it provides not only skilled management but also exposure to a variety of businesses and investments.
Financial experts often advise a gradual approach when setting up a retirement fund, with a diverse investment portfolio. While some individuals might consider investing in index mutual funds or exchange-traded funds (ETFs), Berkshire Hathaway offers a unique opportunity due to its diverse portfolio and successful investments.
