Berkshire Hathaway (BRK.A 0.37%) (BRK.B 0.53%) has the most closely followed stock portfolio in the world, and for a few good reasons. For one thing, it's a massive collection of investments. Even after the recent stock market downturn, Berkshire's portfolio is worth about $329 billion, making up more than half of the conglomerate's entire market cap. Second, the portfolio has a long history of market-beating investments that many investors would otherwise overlook or consider "boring." And last but certainly not least, many of the investments in the portfolio were hand-selected by legendary investor Warren Buffett himself.
However, a few years ago, Berkshire reported an interesting move in its portfolio. The company added shares of two exchange-traded funds, or ETFs. And while these are relatively small investments for Berkshire, it represents Berkshire's first major index fund investments. Here's a look at Berkshire's two ETFs and why they could be some of Warren Buffett's favorite investments even though they currently make up a tiny fraction of Berkshire's overall portfolio.
Berkshire's two ETFs
The two ETFs in Berkshire Hathaway's stock portfolio are the SPDR S&P 500 ETF Trust (SPY 0.10%) and the Vanguard S&P 500 ETF (VOO 0.13%). And they are both very similar. Both are S&P 500 index funds, which means they are designed to deliver the same long-term performance as the S&P 500 index.
The basic idea is that these funds pool investors' assets to buy shares of all 500 companies in the S&P 500 index, and in the same weightings as the index (more shares of larger companies). Both have low expense ratios, or investment fees, with the Vanguard fund charging just 0.03% of assets as an annualized fee, while the SPDR fund has a higher but still very low 0.09% expense ratio.
Buffett is a big fan of index funds like these
Buffett has referred to the S&P 500 as a bet on large American business, and that has historically been a good bet. In fact, a $10,000 investment in the S&P 500 would grow to more than $450,000 over 40 years at the index's historic rate of return.
Not only does Buffett believe the S&P 500 is an extraordinary tool for long-term investors, but he's a big fan of investing in low-cost index funds for the majority of people. Obviously, we love researching and investing in individual stocks at The Motley Fool and Buffett does as well -- but the fact is, the majority of Americans don't have the time, knowledge, or desire to do it right. Buffett has advised investors "if you like spending six to eight hours per week working on investments, do it. If you don't then dollar-cost average into index funds."
Buffett has said many times that index funds are the best way to invest for most people and claims that they'll outperform most other investors over time -- including hedge fund managers. In fact, in 2007, Buffett bet hedge fund manager Ted Seides that an S&P 500 index fund would beat a basket of at least five hedge funds of Seides' choosing over a 10-year period. The results weren't even close. The S&P 500 index fund delivered a 99% total return over the decade (which included the financial crisis), while the hedge fund basket managed just 24%.
So, although both ETF positions are small parts of Berkshire's portfolio (about $30 million total), Buffett is a big fan of these investments. In fact, he has directed that when he passes, 90% of his wife's inheritance is to be placed in a low-cost S&P 500 index fund like these. And even if you're a fan of individual stock investing like I am, a simple S&P 500 index fund can be an excellent "backbone" of any portfolio.
Matthew Frankel, CFP® has positions in Berkshire Hathaway (B shares). The Motley Fool has positions in and recommends Berkshire Hathaway (B shares) and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
FAQs
Berkshire Hathaway stock held strong in 2022, making a slight gain compared to a loss of more than 19% for the S&P 500. So far in 2023, BRKB is up nearly 16%. The S&P 500 is up nearly 17%. All-around performance is very good, which is is reflected in its IBD Composite Rating of 90 out of 99.
Is it a good idea to buy Berkshire Hathaway? ›
Berkshire Hathaway stock held strong in 2022, making a slight gain compared to a loss of more than 19% for the S&P 500. So far in 2023, BRKB is up nearly 16%. The S&P 500 is up nearly 17%. All-around performance is very good, which is is reflected in its IBD Composite Rating of 90 out of 99.
Does Warren Buffet recommend ETFs? ›
There's a good reason why Buffett has long recommended the S&P 500 ETF: Not only can it see significant earnings over time (sometimes more than actively managed funds), but it's also one of the safest investments out there.
Why should I not invest in Berkshire Hathaway? ›
A 6% return is not bad for most people, but likely not worth the risk of a worst-case scenario. If Berkshire grows just 5% per year going forward and then get a PE ratio of 15, the terminal market capitalization 10 years from now would be $837 billion for a miserable 2% yearly investing return.
What is the best investment according to Warren Buffett? ›
The best investment by far
"Whatever abilities you have can't be taken away from you. They can't be inflated away from you. The best investment by far is anything that develops yourself, and it's not taxed at all," advised Buffett.
Is it smart to invest in Berkshire Hathaway? ›
For conservative investors seeking steady, long-term growth, Berkshire Hathaway is among the most popular and practical investments. The company is also one of very few that has managed to outperform the S&P 500 on a consistent basis. Since 1965, Berkshire's total returns have averaged 19.8 percent annually.
Is it better to buy BRK A or BRK B? ›
Class A shares will typically grant more voting rights than other classes. This difference is often only pertinent for shareholders who take an active role in the company. Nevertheless, because of the voting rights, A-shares are often more valuable than B shares.
Which Vanguard ETF does Warren Buffett recommend? ›
Would Buffett recommend investing now? There's a strong case to be made that the Vanguard 500 Index Fund ETF would be Buffett's No. 1 pick.
Why does Dave Ramsey say not to invest in ETFs? ›
Ramsey suggested that if you do want to engage in passive investing, you're better off doing it with an index mutual fund than with an ETF that tracks a market or financial index. His reasoning: Mutual funds are meant to be invested in over the long term, while ETFs trade daily.
Which ETF has the most Berkshire Hathaway? ›
What ETF is BERKSHIRE HATHAWAY INC -B in? There are 193 ETFs which contain BERKSHIRE HATHAWAY INC -B. All of these ETFs are listed in the table below. The ETF with the largest weighting of BERKSHIRE HATHAWAY INC -B is the SPDR S&P US Financials Select Sector UCITS ETF.
Reasons to buy Berkshire Hathaway
The biggest difference is that buying Berkshire Hathaway (or any other stock for that matter) is generally done as an attempt to beat the market. On the other hand, buying an S&P 500 index fund is designed to match the market's returns -- no more, no less.
Does Berkshire Hathaway outperform the S&P 500? ›
Berkshire has a history of outperforming the S&P 500 during recessions, and performing especially well during bear markets, according to data from Bespoke Investment Group. Since 1980, Berkshire shares have beat the broader market over the course of six recessions by a median of 4.41 percentage points.
What is Warren Buffett's favorite way to invest? ›
A staunch believer in the value-based investing model, investment guru Warren Buffett has long held the belief that people should only buy stocks in companies that exhibit solid fundamentals, strong earnings power, and the potential for continued growth.
What 4 stocks is Warren Buffett buying? ›
Buffett's Biggest Holdings
| Company (Ticker) | Sector | % of Portfolio |
|---|
| American Express (AXP) | Finance | 7.5% |
| Kraft Heinz (KHC) | Consumer Staples | 4.4% |
| Occidental Petroleum (OXY) | Energy | 4.1% |
| Moody's (MCO) | Finance | 2.3% |
6 more rowsJun 27, 2023
Resources
- Never lose money. One of Buffett's most famous tips is “never lose money”. ...
- Don't bet on individual stocks. ...
- Utilise dividends. ...
- Get high value at a low price. ...
- Be in it for the long term. ...
- Pay attention to fees. ...
- Start early. ...
- Be patient.
20 Warren Buffett rules for investing
- Big ideas.
- Rule 1 - Don't lose money.
- Rule 2 - Don't forget rule 1.
- Rule 3 - Always have a margin of safety.
- Rule 4 - Find companies with good financials.
- Rule 5 - Find companies with good earnings.
- Rule 6 - Look for consistently high return on equity.
Berkshire Hathaway has received a consensus rating of Buy. The company's average rating score is 3.00, and is based on 1 buy rating, no hold ratings, and no sell ratings.
Is Berkshire Hathaway a risky investment? ›
It owns a variety of well-known private businesses, such as GEICO, and also has minority interests in public companies, such as Apple. Risks of being a Berkshire investor include issues of regulatory challenges and being a conglomerate, as well as the performance of successors when Warren Buffett retires or dies.
Should I buy BRK B right now? ›
BRK-B Signals & Forecast
The Berkshire stock holds buy signals from both short and long-term Moving Averages giving a positive forecast for the stock. Also, there is a general buy signal from the relation between the two signals where the short-term average is above the long-term average.
What is the point of owning Berkshire Hathaway stock? ›
Berkshire Hathaway holds a diversified basket of companies in dependable industries. The company's massive cash pile is an additional safety net. The stock's attractive valuation makes it a no-brainer for investors seeking safety.
