Berkshire Hathaway: The Diversified Powerhouse Outperforming the S&P 500

Investing in Warren Buffett's Berkshire Hathaway (BRK.A, BRK.B) has long been touted as a smart alternative to traditional S&P 500 index funds. With its diverse portfolio of subsidiaries and public company holdings, Berkshire Hathaway offers investors a unique opportunity to tap into Buffett's legendary investment prowess while enjoying the benefits of broad diversification. In this article, we'll explore three compelling reasons why Berkshire Hathaway could be the best ETF-like stock around.

Outperforming the Market with Consistent Gains

Berkshire Hathaway's performance track record is nothing short of impressive. Over the long term, the company has consistently outpaced the S&P 500, delivering exceptional returns for its shareholders. Between 1965, when Buffett gained control of the company, and 2023, Berkshire's compounded average annual return stood at an astounding 19.8%, compared to just 10.2% for the S&P 500. This translates to an overall gain that is over 140 times greater than the broader market index.While past performance is no guarantee of future results, Berkshire Hathaway's success can be attributed to Buffett's disciplined investment approach. The legendary investor only invests when he can comfortably predict future earnings and when the current valuation is attractive relative to those projections. This meticulous process has allowed Berkshire to consistently outperform the market, and there's no reason to believe this trend won't continue, even as Buffett's successors take the helm.

Diversification and Stability

One of the key advantages of investing in Berkshire Hathaway is its diversification. The conglomerate owns over 60 subsidiaries and has stakes in more than 40 publicly traded companies, providing investors with exposure to a wide range of industries and sectors. This level of diversification is comparable to that of an S&P 500 ETF, but with the added benefit of Buffett's investment expertise.Moreover, Berkshire Hathaway's stock has historically exhibited lower volatility than the broader market. The company's beta coefficient, a measure of volatility, has been below 1.0 over the past five years, indicating lower risk compared to the overall market. This stability was evident during the market downturns of 2008 and 2020, when Berkshire's shares weathered the storms better than the SPDR S&P 500 ETF Trust (SPY).

The Advantage of No Expense Fees

One of the key selling points of S&P 500 ETFs is their low expense ratios, typically ranging from 0.03% to 0.09%. While these fees may seem negligible, they can add up over time and eat into an investor's returns. In contrast, investing in Berkshire Hathaway stock incurs no such expense fees, allowing investors to capture the full benefits of the company's performance.This advantage becomes particularly significant when considering the long-term compounding effect. Over the course of decades, the absence of expense fees can translate to a substantial difference in an investor's overall wealth. Combined with Berkshire's superior performance and lower volatility, this fee-free structure makes the company an even more compelling alternative to traditional S&P 500 ETFs.

The Buffett Factor

Ultimately, the primary reason why Berkshire Hathaway could be the best ETF-like stock around is the presence of Warren Buffett. The legendary investor's unparalleled track record, disciplined investment approach, and unwavering commitment to shareholder value have been the driving forces behind Berkshire's remarkable success.While Buffett won't be around forever, the company's shareholders can take comfort in the fact that Berkshire's leadership team is dedicated to maintaining the same investment philosophy and principles that have made the company so successful. This continuity and adherence to Buffett's proven strategies are likely to ensure that Berkshire Hathaway continues to outperform the broader market for years to come.In conclusion, Berkshire Hathaway's combination of superior performance, lower volatility, and the absence of expense fees make it a compelling alternative to traditional S&P 500 ETFs. With its diversified portfolio, Buffett's investment expertise, and a commitment to shareholder value, Berkshire Hathaway stands out as a unique and potentially superior investment option for those seeking broad market exposure with the potential for outsized returns.