Motley Fool: Built to last – and to profit
The company that Warren Buffett helmed for 60 years, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), remains a solid investment even though he has stepped down from the CEO role. (He is staying involved with the company, though, as chairman.) Berkshire stock is as diversified as some index funds, invested in a wide range of companies spanning multiple sectors.
Berkshire has more than 60 subsidiaries. Its insurance and energy businesses get the most attention, but it also owns jewelers, manufacturers, a railroad, restaurant chains, retailers and more.
The company’s portfolio includes more than 40 stocks of other publicly traded companies. Berkshire recently owned 22% of American Express, 10% of Domino’s Pizza, 9% of Coca-Cola, 7% of Bank of America and 1.5% of Apple (with that stake alone worth nearly $62 billion).
Berkshire Hathaway is in capable hands with Greg Abel as CEO. The transition introduces some uncertainty, but Abel is expected to maintain the same focus on value-oriented investments. Meanwhile, Berkshire sits on more than $370 billion in cash – dry powder that could fuel a major acquisition or even a first ever dividend. Berkshire’s strong culture of savvy capital allocation, patience and discipline should lead to solid investments that will add to the company’s already powerful earnings engine. (The Motley Fool owns shares of and has recommended Berkshire Hathaway.)
My dumbest investment
My most regrettable investment? Well, I owned shares in Tesla very early on. I think it was $15 per share at the time. Then I read an article in a reputable financial magazine, and the author said Tesla would be a good company with a good product, but they would never be able to sell enough cars. After reading the article, I sold Tesla and made some money. But I did not own the shares while the stock rose and rose and rose. I should not have listened to the so-called expert in the magazine. – B.P., via email
The Fool Responds: Even the most expert experts will make bad calls now and then. It’s best not to just do what they say, but instead to think about what they say and decide whether you want to act on it.
It’s true that Tesla has been a standout stock over the past few years. But that may or may not continue: Sales have been shrinking, in part due to the underperforming Cybertruck, safety concerns and Elon Musk’s political maneuverings. Tesla’s shares fell about 10% in the first two months of this year; they also seem overvalued, with a recent price-to-earnings (P/E) ratio of 370 and a recent market value for the company of $1.5 trillion.
(Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@ fool.com.)
Ask The Fool
Q. What’s behavioral economics? – A.M., Brooklyn, New York
A. It’s an academic field combining psychology and economics in order to explain how people make financial decisions – often not in rational ways.
For example, many people would drive a distance to save $10 on a $20 purchase but wouldn’t do so to save $10 on a $1,000 purchase – though the amount saved would be the same. Meanwhile, you may skip buying a $100 jacket, but if you see that its initial price was $160, you might reconsider, viewing the price differently.
We can be similarly irrational when it comes to investing, too. Many people put off or avoid participating in their workplace 401(k) plan even though they know they should. They may stubbornly remain invested in a stock in which they have lost faith, hoping to make back their loss – when it would be more rational to just sell and move the money into a more promising investment.
It’s a fascinating topic, and you can learn much more about it in books such as “The Armchair Economist: Economics & Everyday Life” by Steven E. Landsburg (Free Press, $20), “The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life” by Uri Gneezy and John A. List (PublicAffairs, $27), “Nudge: The Final Edition” by Richard H. Thaler and Cass R. Sunstein (Penguin Books, $20) and “The Little Book of Behavioral Investing: How Not To Be Your Own Worst Enemy” by James Montier (Wiley, $25). The “Freakonomics” podcast and book series are also enlightening.
Q. What’s a capital gain? – P.L., Grand Rapids, Michigan
A. If you own an asset and sell it, the difference in value from your purchase price is your capital gain – or capital loss.