Tuesday, May 08, 2007

BRK.B -- My very own index fund

It's May. It's the advent of spring, a time when this young investor's fancy turns to Berkshire Hathaway's annual general meeting in Omaha, Nebraska.

I bought a single Baby Berk share a little over a year ago for about $3100 U.S. My reasons, at the time, were that I was looking for exposure to the U.S. market, but mainly, I'm such a fan of the Buffett investing philosophy, I thought having that share in my portfolio would be a good benchmark to hold myself up against. I still really like the way the Oracle of Omaha thinks about investing, but the more time goes by, the more I like my stake in it for new reasons.

I think of it as a sort of actively managed, diversified U.S. equity fund.

I know it's foolish to ignore U.S. equities and they've historically been the real driver of the global economy. But today, the negative job numbers, housing stats, growing federal debt and quagmire in Iraq make me really worried. Worried enough that part of me wants to get out altogether. To be sure, there will be winners and losers even in a down market as there always, are, but I'm rarely smart enough to predict which will be which, so I'd have to go with an index fund and buy the whole market. And that exposes me to the downside risk that I'm convinced is coming.

But via Berkshire, I'm basically getting a stake in a holding company that takes positions in large-cap U.S. companies it thinks will outperform over the long-term. And it's run by the best fund manager in the business. About 50% of Berkshire's revenues come from solid industries like insurance, but there's also a hefty stake in stalwarts like pharmaceuticals, utilities and manufacturers. Not to mention blue-chip retailers and consumer goods like Dairy Queen, Microsoft, Wal-mart and Coca-Cola. And the company has even started to invest internationally.

I guess what I'm saying is, when the bad times inevitably come to U.S. equities, I trust the companies Warren Buffett likes to outperform the market as a whole. It's not like he doesn't have a track record at this. The stock's up 3600% since 1987. That's six times better than the NYSE over the same period. The company's sitting on $46-billion in cash -- enough to buy Bank of Montreal outright and then some, for Pete's sake.

It's nice that the stock's up 17% since I bought it, but I never saw it as a short-term position. I'll be holding on to my stake in Berkshire Hathaway for a long, long time.

1 comment:

Lacey said...

Buffet is a genius. And a great man for society too.

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