In early August, Class B shares of Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) hit a new all-time high just north of $363 per share. Indeed, it has been a remarkable climb for Warren Buffett (Trades, Portfolio)'s empire, which is now sitting up more than 16% year to date. Despite hitting hovering at new highs, the stock continues to look like a great value investment for any investor looking to do well (perhaps better than the broader S&P 500 or Nasdaq 100) over the long run.
Long-term investment strategy
Indeed, Buffett and his colleagues are conditioned to think for the long haul. As the market rally continues strong going into the end of the year, do not count on Berkshire to "chase" any hot stocks to get into hot trends such as generative artificial intelligence. Berkshire is not one to be late to investment parties.
Financial firepower
For now, it seems like the company is content sitting on its growing pile of cash. As of the latest quarter, Berkshire's cash pile sits at just above the $147 billion mark. Indeed, that is a lot of financial firepower to take advantage of opportunities.
Should September bring forth a market correction or pave the way for a steeper sell-off as the economy faces a potential economic downturn, Berkshire may be more inclined to be a net buyer. In the meantime, Berkshire shareholders should find plenty of comfort knowing that Buffett and company are locked, loaded and ready to go come the next inevitable market pullback, whenever this may be.
Interest rates and investment opportunities
Now, Berkshire has commanded a massive cash pile in the past. This is not the first time the company has had too much liquidity with too few investment ideas. Though stock market valuations may not be absurd, it is hard to argue that having too much cash is not as much of a problem as it was just over two years ago. With interest rates flirting around 5.5%, Berkshire stands to get quite a bit of return for its U.S. Treasury notes. As rates continue moving higher, Berkshire may be in a spot to increase its bond exposure further. So, as the company waits for stock market bargains to arrive, it will be compensated at a pretty stellar rate.
High rates may be bad news for stocks, especially those in the tech sector. However, for Buffett and Berkshire, higher rates make the wait for a market sell-off that much less painful. So, until there is a severely discounted stock that has a risk-reward that is better than the more than 5% risk-free rate, do not expect Berkshire to be in a rush to act. The company could sit on its hands and still do pretty well over the next few years, regardless of what markets do and whether an economic recession is in the forecast.
Positioning for economic downturns
Simply put, Berkshire can enjoy this high-rate climate like few other companies out there. And if there is a harder landing for the economy, Berkshire may ultimately benefit, at least over the long run, as it looks to pick up securities on the dip at potentially steep discounts to their intrinsic value.
Nobody has any idea what the Oracle of Omaha's next move will be. The man recently turned 93, but he is still practicing what he has preached many times in the past. He is being patient and is not being drawn in by the allure of technological trends.
Portfolio stability
Berkshire Hathaway is one of those stocks you can just buy and forget you own. It makes for a magnificent long-term foundation for any portfolio that aims to beat the market averages.
Even after an impressive quarterly result that saw earnings per share of $4.62 surpass the consensus estimate of $3.87, Berkshire still looks cheap, given the potentially rocky road that could lie ahead in 2024.
Natural hedges
Though Berkshire Hathaway does not use traditional hedges or shorts that some hedge funds may be so inclined to use, the company does sport for "natural hedges against different macroeconomic environments," according to Clark Capital Management's chief investor Steven Check, who recently sat down with Insider to chat about Buffett and Berkshire.
Check pointed to Berkshire's diverse range of businesses, its impressive cash hoard, and the interest it stands to collect from its Treasury investments.
I agree with Check. Berkshire is hedging its bets to do relatively well, regardless of what the market throws its way over the next quarter, year or five years. In that regard, I view the stock itself as a great way to hedge your portfolio against what could be a choppy next year or so.
Conclusion
Higher rates in the cards? Bargains galore as the market takes a plunge? Berkshire will be ready!
At the time of writing, the class B shares trade at 1.46 times book and 1.97 times sales. Not exactly expensive for what you get!
