Buffet, Berkshire Hathaway have hands in healthy future

When you hear “Berkshire Hathaway” (NYSE: BRK-B), you probably think “Warren Buffett.” Buffett is only one part of why Berkshire Hathaway might be a key component of your portfolio, though.

At its core, Berkshire Hathaway is an insurance company, owning the gecko-fronted GEICO, as well as more-specialized insurance operations. But it’s also a railroad operator, having bought BNSF. And it’s a chocolatier, with See’s Candies. It’s also an energy utility, a paint company, an underwear manufacturer, a furniture seller, a modular-home builder, a fine-jewelry seller, a boot-maker and much more. (You’ll find a list of its subsidiaries at berkshirehathaway.com.)

It’s also an asset manager, with a massive stock portfolio that includes some big positions. Indeed, it owns 8.8 percent of the whole Coca-Cola company, 7.6 percent of Wells Fargo, 5.5 percent of IBM and 13 percent of American Express. (By the way, The Motley Fool owns shares of these companies – and Berkshire Hathaway itself – and/or has recommended them in its newsletters.)

Berkshire offers high-quality diversity with great long-term promise.

Ask the Fool

Q: What does it mean if a company has a “poison pill” strategy? – B.L., Hartford, Conn.

A: A company may employ such a strategy to avoid being taken over. In one version of it, shareholders (but not a would-be acquirer) are permitted to buy more shares of company stock at a discount. This dilutes the value of the stock, including those shares held by the acquirer, making a buyout more difficult and expensive to pull off. Another poison-pill tactic is to permit shareholders to buy the would-be acquirer’s stock at a discount in the event of a merger.

Shareholders have sometimes protested poison pills because they dilute the voting power of shares and because sometimes a takeover would actually be good for the company and shareholders.

Some companies with poison pill plans have gotten rid of them, as Time Warner did in 1991.

Q: How long must I keep financial records for tax purposes? – R.B., Adrian, Mich.

A: Keep copies of all your tax returns forever. Keep canceled checks, bank statements and receipts for at least three years, ideally seven – printing out copies if you receive them electronically. (Hang on to checks related to next year’s tax return for an extra year.)

Retain stock trade confirmation receipts and statements for as long as you own the stock and for at least three years (ideally seven) after you close out your position.

Keep proof of improvements to property for at least three years after the sale of the property. Keep escrow closing documents for at least three years (again, ideally seven) after the property is sold. Think twice before you throw anything out.

My dumbest investment

I read a short article in some publication about how White Smile Global was going to hit the $2 range within the next couple of weeks, when it was trading for roughly 90 cents per share. Like an idiot, I succumbed to my greed and bought in without really doing my homework. Well, the stock fell to less than 25 cents per share and has recently been around 50 cents. There seems to be something fishy here. – S., online

The Fool responds: Not doing your homework cost you a lot. First off, know that penny stocks – those trading for less than about $5 per share – tend to be extremely risky. They can be easily manipulated sometimes, too, by hypers and scammers.

This tooth-whitening company’s latest earnings report discusses many plans, but also notes, “We have not generated any revenues since inception.”

Yikes! Companies without earnings are risky enough, but this one has no revenue, either. Why take such chances when there are healthy, growing companies out there that are undervalued?