Pick Businesses, Not Stocks

WARREN Buffett, the chairman of Berkshire Hathaway, is the most successful investor of our time. His daughter, Susan, worked as my assistant when I was publisher of a magazine 40 years ago. Just before she got married, Susie told me she worried that her fiancé’s parents had bought a couple shares of Berkshire stock—and what if it tanked? At the time, the price was about $1,000 a share. Today, it’s $507,000 a share. I hope the in-laws hung on.

- JAMES K. GLASSMAN

In his latest annual report, Warren Buffett calculates that the average yearly gain in market value from his acquisition of Berkshire in 1965 through the end of 2022 was 19.8%, compared with 9.9% for the S&P 500—an astounding difference, matched by no one of whom I’m aware. And Berkshire beat the market in two-thirds of the years.

So, as it turns out, you can beat the averages—or at least Warren Buffett can. What can mere mortals learn from his success?

First, let’s understand Berkshire Hathaway Inc. Buffett writes that in 1965 it was a “one-trick pony, the owner of a venerable—but doomed— New England textile operation.” Buffett switched to insurance and bought National Indemnity, a company he still owns. 

STREET SMART  

Today, Berkshire has three major kinds of investments: cash (a war chest of $104 billion, as of March 31); companies that Berkshire operates and typically owns in full, ranging from GEICO to BNSF Railway to See’s Candies; and publicly traded stocks that you can buy yourself.

At last count, Berkshire owned shares of 46 different public companies, but a few dominate, with just five stocks accounting for threefourths of the value of Buffett’s stock holdings: Apple, Bank of America, Coca-Cola, American Express and Chevron. Buffett doesn’t worry about concentration. He likes to quote the actress Mae West: “Too much of a good thing can be wonderful!” But the overall portfolio (operating companies plus stocks) is certainly diversified by sector. He owns tech, banks, energy companies, consumer-goods firms, health care, automakers, retailers, media, railroads, charter jets, furniture, homebuilders, insurance and more.