Warren Buffett might be the most famous and accomplished long-term investor Wall Street has ever seen. Professional and individual investors have had the opportunity to invest alongside Buffett via his holding company, Berkshire Hathaway. The company’s original class A shares (BRK.A 0.20%) have returned over 5,500,000% since the 1960s, far exceeding the S&P 500 index.
Berkshire Hathaway issued class B shares (BRK.B 1.05%) in 1996. These “Baby B” shares have less voting interst (ability to vote on corporate measures) than their economic interest (their right to BRK earnings), but their (far lower) share price makes them budget-friendly for most individual investors.
Lately, investors have flocked to Berkshire Hathaway amid increased market volatility and uncertainty. Berkshire’s class B shares have surged 16% since January, while the S&P 500 is down 5%. A nearly 21% swing in just three months is massive! Should investors still buy the stock?
Let’s see why money is pouring into Berkshire Hathaway and whether it still makes sense to buy shares now.
Fear and uncertainty are escalating
Investors are sitting on the edge of their seats right now. The market feels uneasy due to multiple wildcards that could significantly affect the broader economy.
The Trump Administration has communicated to the market that it intends to reposition the U.S. economy. It is trying to rein in federal spending and use tariffs to sway companies to invest in domestic manufacturing. U.S. Treasury Secretary Scott Bessent admitted that these policies may cause short-term disruption, even if they eventually prove effective.
In addition to the U.S. government’s dramatic policy shifts, there are ongoing geopolitical conflicts in Europe and the Middle East. To top things off, economic data is warning of a potential recession, and U.S. consumers are financially tapping out.
Seeking shelter in Berkshire Hathaway
As fear and uncertainty grip investors, they will seek shelter in perceived safe investments, and Berkshire Hathaway might be the world’s most financially stable company.
Berkshire Hathaway owns over 180 independently functioning subsidiary businesses. Their operating earnings trickle down to Berkshire’s bottom line, totaling $47.4 billion in 2024.
These subsidiaries span almost every industry in the economy, including:
- Insurance
- Railroads
- Energy generation, pipelines, and utilities
- Industrial components, materials, paints, and coatings
- Housing construction
- Consumer-facing goods and services, such as food and clothing
Additionally, Berkshire Hathaway has an extensive portfolio containing stakes in various public corporations. Its top holdings include blue chip stocks, like Apple, American Express, Coca-Cola, Bank of America, and Chevron.
Buffett has steadily, over decades, built Berkshire Hathaway into what’s essentially a diversified investment in the U.S. economy.
If that isn’t enough, Buffett ensures that the company has tons of cash and a healthy balance sheet. Berkshire ended 2024 with a remarkable $334 billion in cash and equivalents, partly due to Warren Buffett trimming stocks throughout the past year. The company boasts a sparkling AA credit rating from Standard & Poor’s.
It’s no wonder people have gravitated to Berkshire Hathaway. The strong track record, diverse business assets, and fortress-like balance sheet stand out, especially when investors feel afraid and shy away from risk.
Should investors buy Berkshire Hathaway now?
The more investors pile into Berkshire Hathaway, the higher its valuation climbs. Class B shares trade at over 1.7 times book value, its highest ratio in almost two decades.
BRK.B Price to Book Value data by YCharts.
Investors should tread carefully here. Berkshire Hathaway is a huge company today with a $1.1 million market cap. The company has a fantastic history of increasing its book value, but growing isn’t as easy when you’re big. It gets harder to move the needle. Since 2020, Berkshire’s share price has gotten increasingly ahead of the assets the stock represents.
As with any other stock, overpaying increases the risk of share price declines if the market tumbles or Berkshire’s businesses underperform. Remember, no stock is immune to price volatility, even Berkshire Hathaway. Since 1996, Berkshire’s class B shares have declined 20% from their high numerous times, and declined over 40% twice. I think it’s notable that Buffett refrained from repurchasing any shares in fourth-quarter 2024.
Given the steep valuation, Berkshire Hathaway’s class B shares are not a buy now.
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