Is Berkshire Hathaway a Millionaire-Maker?
Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) is one of the most storied stocks on Wall Street. It has minted a large number of millionaires over time. However, buying today may not be the best option if you hope that it will make you a millionaire, too. But don't write the stock off -- CEO Warren Buffett looks like he is getting ready to make some big moves when the time is right.
Berkshire Hathaway is hard to explain
Berkshire Hathaway would not exist today if it weren't for the very unique investment approach taken by longtime CEO Warren Buffett. To summarize his methods as simply as possible, he prefers to buy well-run companies while they are out of favor for some reason. This requires patience and access to investment capital. (Keep those two things in mind as you continue reading.) Over time, he has built a complex and shockingly diversified conglomerate.
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Today, the S&P 500 index is trading near its highest levels in history. That means that companies are, generally speaking, priced very highly in the current environment. It is hard to find good companies "on the cheap" to buy right now. That's why Buffett warned in the company's 2023 annual report:
There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others. Some we can value; some we can't. And, if we can, they have to be attractively priced. Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance.
Re-read the last sentence: "All in all, we have no possibility of eye-popping performance." Buffett is basically warning investors that this is not a millionaire-maker stock right now. However, given Buffett's investment approach, that's not exactly surprising, either.
The future is going to be the key for Berkshire Hathaway
Investors shouldn't assume, however, that Berkshire Hathaway will never be a millionaire-maker again. The company's vast size is an impediment, since it needs to make big deals to move the needle. However, at the end of 2023, Berkshire had over $163 billion in cash and short-term investments on its balance sheet. By the end of the first quarter of 2024, that figure had grown to over $182 billion. And at the end of the second quarter, it was over $271 billion.
Notably, the headlines have been filled with news about Buffett selling appreciated stocks, such as Apple and, to a lesser extend, Bank of America. With regard to Apple, Buffett reduced his stake by around 50%, so it was a huge move. Bank of America was "just" a change of a couple of billion dollars. Still, a lot of the cash raised from these sales is likely to find its way onto the balance sheet.
This is where things get interesting, because Buffett has a habit of sitting on cash until he finds something he believes is worth buying. And he often acts while other investors are fearful, like during big market sell-offs (he invested in Bank of America during the Great Recession, for example). The fact that he's building up a cash hoard while the stock market is near all-time highs is likely setting him up to make a sizable move when the next bear market rolls around.
Be patient, like Buffett
If you want to own Berkshire Hathaway, hoping it can help make you a millionaire like it has so many others, you'll want to sit tight on the sidelines right now. Buffett himself is telling investors as much. However, he also appears to be gearing up for a time when there are more opportunities to invest. That will probably be a hard time to invest, because Wall Street will be in disarray and babies will be getting tossed out with the bathwater.
But if you can think like a contrarian, that's when Berkshire Hathaway will likely have the greatest opportunity to get you to seven figures. First, the stock will likely be cheaper and, second, that's when Berkshire Hathaway will have the best opportunity to put its cash hoard to work.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
