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Berkshire Hathaway is one of the largest companies in the world, and it owns a wide variety of businesses, ranging from insurance and energy to chocolates and fast food. It’s long been known as the holding company of legendary investor Warren Buffett, and the company has racked up 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’ll need to know before you decide.
1. Analyze Berkshire Hathaway and its financials
Analyzing a company’s competitive position and financials is probably the single hardest part of buying the stock, but it’s also the most important. The best place to begin is with the 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 it makes money and how much
- its assets and liabilities
- its profitability trend over time
- the competitive landscape
- the various risks faced by the business
- the management team and how they’re incentivized
The annual report is a great first step at finding out about the company, but you’ll want to do more than this. You’ll want to study what other companies are doing to compete, because it’s important to have a broader perspective of the industry.
For example, Berkshire competes in a wide variety of industries, but it’s most importantly an insurance company through GEICO and other subsidiaries. Berkshire recently struck a deal to acquire Alleghany for about $12 billion.
Berkshire is also a big player in the utilities industry, and owns a railroad and dozens of other businesses, too. Given this array, Berkshire can be a very tough company to follow. On top of this, Berkshire owns a sizable portfolio of some of the world’s largest stocks, 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 letter is written in an accessible way, 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 market’s blue chip stocks and has a long history of outperformance. The company’s insurance operation powers a lot of what Berkshire does, and Warren Buffett has an enviable track record of investing the company’s excess cash. With a plethora of well-performing businesses, Berkshire may be a good fit for many portfolios, but perhaps not all, since it doesn’t pay shareholders a dividend.
Also, while Berkshire Class A shares get all the press for their ultra-high price, the company also has Class B shares that have the same proportional economic rights, but trade for a lower price and have fewer voting rights.
So you’ll 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 stocks can be volatile, will you be able to hold on if it drops or even buy more?
- Do you have a sense of what the company is worth and how that compares to the current market value?
- Berkshire doesn’t pay a dividend – do you need that in a stock?
3. How much can you afford to invest?
How much you can afford to invest has less to do with Berkshire Hathaway than with your own personal financial situation. Stocks can be volatile. So, to give your investment time to work out, you’ll likely want to be able to leave the money in the stock for at least three-to-five years. That means you should be able to live without the money for at least that length of time.
Committing to holding the stock for three-to-five years is important. You’d hate to have to sell the stock when it’s near a low only to watch it rebound much higher after you exited the position. By sticking to a long-term plan, you’ll be able to ride out the ups and downs of the stock.
If you’re investing in individual stocks, you’ll likely want to keep the percentage of any single position between 3 and 5 percent. This way you’re not heavily exposed to one investment breaking your portfolio. If the stock has more business risk, then you might choose an even lower percentage than this range.
In addition, rather than just committing a one-time sum of money 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 sound like a difficult step, it’s actually quite easy, and you can have everything set up in 15 minutes or so.
You’ll want to select a broker that caters to your needs. Are you trading often or infrequently? Do you need a high level of service or research? Is cost the most important factor for you? If you’re buying a few stocks but investing mainly in funds, then a number of brokers specialize in offering commission-free trading for those funds.
After you’ve opened 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 simple.
With Berkshire’s Class B shares trading around $350 per share as of March 2022 (its Class A shares trade for about $535,000), you may not have enough money to buy an entire share. Several brokers, including Charles Schwab and Fidelity, have started offering fractional shares to help with this problem, allowing you to invest with just 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 up your order. Use the company’s ticker symbol – BRK-B for the Class B stock – when you input your order.
Most brokers have a “trade ticket” at the bottom of each page, so you can enter your order. On the broker’s order form, you’ll input the symbol and how many shares you can afford, or the amount you’d like to invest if you’re buying fractional shares. Then you’ll enter the order type: market or limit. A market order will buy the stock at whatever the current price is, while the limit order will execute only if the stock reaches the price that you specify.
If you’re buying just a few shares then you’re likely best off sticking with a market order. Even if you pay a little bit more now for a market order, it won’t affect the long-term performance much, if the stock continues to perform well.
Buying a stock can be exciting, but success won’t happen overnight. Investors should take a long-term perspective on their investments, and they should consider taking advantage of dollar-cost averaging, if they believe in the stock for the long haul.
With dollar-cost averaging, investors add a set amount of money to their position over time, and that really helps when a stock declines, allowing them to purchase more shares. High-flying stocks can dip from time-to-time, so the strategy can help you achieve a lower buy price and higher overall profits.
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Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.