As most experienced investors can attest, there's no such thing as a perfect investment. Everything is a trade-off. You're exchanging safety for bigger returns, for instance, or looking for strong near-term returns that won't persist in the long run. That's just the nature of the business, and that's why investors' portfolios need regular updating.
There's one arguable exception to this premise, however. That's Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B). It offers almost everything an investor could reasonably want -- including market-beating performance -- while minimizing the pieces of the stock-picking puzzle we're all trying to avoid.
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Best of all, Berkshire's one of those prospects that can be bought today and trusted enough to hold for a lifetime, knowing it's built to maintain its market-beating results.
What is Berkshire Hathaway, anyway?
What's Berkshire Hathaway? That's a good question. It largely defies the category descriptions commonly used within the investing arena.
It's certainly like a mutual fund or ETF (exchange-traded fund), in that it buys and holds individual stocks in hopes of capital gains or reliable cash dividends. It's not a fund, though. Most mutual funds' and ETFs' operating policies require that a minimum amount of capital remain invested at all times. That's not the case for Berkshire Hathaway. Most ETFs and mutual funds also self-limit the sort of investments they hold. Again, though, not Berkshire.
It almost sounds like a hedge fund, but that description doesn't quite fit either. Hedge funds not only charge an ongoing management fee, but also grant themselves a generous performance bonus when they happen to perform well. Buffett and his lieutenants do neither. (Never even mind the fact that most hedge funds habitually underperform the market.)
An ordinary publicly traded company, then? Sort of, but arguably more no than yes.
While Berkshire Hathaway is technically a conglomerate, most conglomerates still only operate a small handful of somewhat related ventures. Berkshire holds over 60 different privately held enterprises that operate quite independently of one another. These businesses include Duracell batteries, Dairy Queen, Fruit of the Loom, railroad BNSF, flooring company Shaw, and Geico Insurance, just to name a few.
Then a private equity firm? That's probably more accurate than any other comparison, but there's no denying that Berkshire Hathaway views its role as an owner very differently than most PE firms do. Many private equity outfits are looking to eventually sell a company they've helped grow. Berkshire doesn't seem to want to let go of any entity it wholly owns, since most of them are outstanding cash cows.
Private equity is also far from being this conglomerate's sole focus. Only about one-third of Berkshire's total organizational value comes from privately held businesses.
Rather, Berkshire Hathaway is a little bit of all these things, and can be more or less of any of them as merited. That's precisely why buying a sizable stake in this ... whatever-it-is today could set you up for life.
Flexibility, adaptability, and patience are key
At the risk of waxing too philosophical, most investors' top self-created stumbling block is a lack of flexibility. Growth-seeking investors might insist on owning nothing but growth stocks, for example, even when growth stocks are headed into a long-term headwind. In a similar sense, income-minded investors who also value safety may insist on owning nothing but government-issued bonds. But doing so would have meant locking in sub-inflation interest rates for the better part of the past 15 years.
Although all investors should always keep their ultimate goal in mind, all investors should also recognize that any given market environment may not favor them for years on end. This can prove costly if you're not willing or able to adapt.
It's admittedly easier said than done. Aside from habit, most investors have some sort of specialized skill or knowledge that makes them something of an expert in one particular kind of investing. It can be uncomfortable to "change lanes," or "switch gears."
That's where a hyper-patient, all-around expert like Warren Buffett brings value to the table.
Unfazed by short-term noise, Buffett's largely proven that he knows when to buy, when to hold, and when to sell. Indeed, he embraces short-term setbacks as the buying opportunities they almost always are. He's also proven that sometimes stocks are your top prospects, while at other times, privately owned companies (which individual investors can't own on their own) are compelling opportunities. He's even proven that -- sometimes -- the best thing to do is just sit on your cash and wait. In this vein, as of right now, Berkshire's cash hoard of more than $330 billion is worth more than the value of all the conglomerate's stock holdings combined.
Perhaps most importantly, Buffett's proven that this flexibility and adaptability ultimately allows for long-term market-beating results.
Note that Berkshire Hathaway shares are also actually a bit less volatile than the S&P 500(SNPINDEX: ^GSPC) is, and it often makes forward progress even when the broad market doesn't. That's when Buffett's value-minded approach really shines, providing the resiliency and consistency that often cause growth-focused portfolios to underperform in the long run.
Not for everyone, but certainly for most long-term growth seekers
It's still not a perfect all-around investment for everyone, to be clear. For instance, Berkshire doesn't pay dividends. If you need regular income, look elsewhere. Buffett's preferred holding period of "forever" also means he intends to ride out any major sell-offs. If you're planning on eventually living on your invested savings at some point in the future, you can't afford to be quite as patient once your retirement is at least within sight.
For as long as you need reliable long-term growth, though -- and for as long as you can stomach the ebb and flow that comes with it -- Berkshire Hathaway really is a superior option. You'll never need to do anything with it, either. Buffett and his protégés will optimally manage Berkshire on your behalf. All you have to do is hold on to it.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
