What if i told you there was a mutual fund with one of the best money managers in the world and had returned amazingly consistent growth every year for decades. What if i said that the fund had the flexibility of investing usually found only in hedge funds. What if i also told you that the fund had no load, administrative or management fees. The fund is diversified across sectors and also invests internationally. It holds stocks, complete companies, bonds and foreign exchange. The fund manager puts all of his own money in this very mutual fund thus completely aligning his interest with the mutual fund holders. As an added bonus the fund will never have distributions which force you to pay tax even if you still hold the shares.
The name of this amazing mutual fund is Berkshire Hathaway but its a stock and not a fund. Lets look at the company in detail regarding the claims I made.
Manager: Warren Buffett Nicknamed the “Oracle of Omaha” or the “Sage of Omaha”, Buffett has amassed an enormous fortune from astute investments, particularly through his company Berkshire Hathaway, in which he holds a greater than 38% stake. With an estimated current net worth of around US$42 billion, he is ranked by Forbes as the second-richest person in the world, behind only Microsoft chairman Bill Gates.
Returns: Since 1965 the company has averaged 21.5% returns in per share book value. This is one of the best returns for any company or mutualfund over any large period of time (10 yrs+). During the same period of time the S&P index has returned 10.8% and most mutual funds perform worse than the S&P.
Expenses: Mutual funds have a bunch of expenses and fees. Initial sales fees, Deferred and Redemption fees cut into your investments. The fees I mentioned are incurred only once. There are also Administrative, Management and 12b-1 fees that are charged anually whether the mutual fund makes you money or not. Since Berkshire Hathaway is a stock there are no fees. Warren buffet recieves no stock options and has an annual salary of $100,000.
Diversification: Berkshire Hathaway by defenition is a holding company owning subsidiaries and stocks engaged in a number of diversified activities.
Major stock holdings: American Express, Ameriprise, Anheuser Busch, Coca-Cola, M&T Bank, Moody’s, Petrochina, Proctor & Gamble, Wal-Mart, Washington Post, Wells Fargo, White Mountain Insurance
Minor stock holding: ConocoPhillips, General Electric, United Parcel Service, Nike, Home Depot, Costco
Major Subsidiaries: GEICO, General Re, National Indemnity, MidAmerican Energy, Iscar Metalworking
Minor Subsidiaries: Clayton Homes, Acme Brick, Ben Bridge Jewellers, Benjamin Moore, Borsheims Fine Jewellery, CORT Business Services, Fruit of the Loom, Garan, Helzberg Diamonds, HomeServices of America, Dairy Queen, McLane Furniture, Nebraska Furniture, Netjets, Pampered Chef, Sees’ Candies, Shaw Industries, Wesco Financial and more
Flexibility: Mutual Funds are restricted in what they can invest. Most funds are restricted by the valuation (Value vs Growth), Geographic (US vs International/Emerging Markets), type of Instrument (Stocks/Bonds/Currency). Berkshire Hathaway has no such restriction. It can invest in any type of Company anywhere in the world. It can also invest in any form of investment.
Taxes: Mutual funds are forced by law to distribute at least 90% of its’ realized capital gains and dividend income each year. You then have to pay taxes on the distribution. In the case of Berkshire since you just buy or sell the stock of a company, you only need to pay capital gains taxes when you sell the stock. In the meantime Berkshire can compound your money for you.
Conclusion: A company run by the best money manager of our time. It has the diversification of a mutual fund, flexibility of a hedge fund and the cost and tax advantages of a stock.
Conflicts – I own class B shares of Berkshire Hathaway.
