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The Best Financial Stocks to Invest $1,000 in Right Now
If you have $1,000 to invest, you cannot buy the A shares of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), which trade for more than $600,000 per piece. But there are Class B shares currently priced around $400 or more. Believe it or not, it might be worth buying two Class B shares of Berkshire Hathaway. Here’s why – and it’s probably not the reason you’d expect.
Berkshire Hathaway is not what you think
The obvious answer to the question: “What is Berkshire Hathaway?” would be: “A company”. But that’s not the full story. Berkshire Hathaway once manufactured textiles, a business it had to close because foreign competition was eating its lunch. What this company actually turned out to be is the investment vehicle of Warren Buffett.
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Buffett’s long-term investment success has led to him being nicknamed the Oracle of Omaha, where he lives. To greatly simplify Buffett’s process, he likes to buy well-run companies when they appear to be reasonably priced (or even cheap). He then allows the leaders of those businesses to run the companies while he holds the shares for the long term. Notably, he only becomes involved in a subsidiary’s operations if there is a good reason to do so; otherwise, it allows good managers to do their jobs.
While not every investment is a winner, Buffett has had more successes than mistakes over time. And many of his hits were home runs. To put some numbers on this, since 2000, Berkshire Hathaway has a total return (which includes dividend reinvestment) of 1,010% versus 461% for the S&P 500 index. While Berkshire Hathaway doesn’t pay dividends, the S&P 500 does, so total return is the fairest way to compare the two. And Buffett’s investment ability is clearly on display.
BRK.A Total Return Level Chart
Why buy Berkshire Hathaway?
While you might think the reason to buy Berkshire Hathaway is the stock’s success, that’s actually not the case. The reason you want to buy stocks is because you believe in the investment approach that Buffett is following. Past performance does not guarantee future results, but a strategy that has been so successful for so long seems highly likely to provide solid returns in the future.
There is one more important fact here, however. Berkshire Hathaway is not a one-trick pony that only operates in a single sector. It is one of the most diversified businesses you can own. To highlight this point, the company operates a large insurance business, a major rail line, several utilities, and a midstream energy business. These are the investments large enough to launch. It also has retail assets, a real estate sales business, travel centers, metal parts manufacturers, a chemical company, an agricultural tool manufacturer, a home construction company, a carpet company, an insulation manufacturer and a paint manufacturer. And that’s not even the complete list!
The story continues
Additionally, Berkshire Hathaway has a portfolio of stocks that it invests in, but it does not own the entire company. This list ranges from beverages to finance to energy and often gets more attention than your wholly owned investments. The real key here is that buying Berkshire Hathaway is like investing alongside Buffett, giving you access to his investing approach with just a modest amount of money.
No investment is perfect
There is no such thing as a free lunch on Wall Street, so there are issues you need to consider before buying, the biggest of which is Buffett, who is quite senior and will likely end his tenure as CEO of Berkshire Hathaway at some point relatively soon. While he will likely have a large hand in training his successor, when he leaves, you’ll want to pay close attention to what happens. As long as Berkshire Hathaway continues to use its basic investment strategy, owning Berkshire Hathaway will continue to be a worthwhile choice and unlike any other stock you can buy with $1,000 today.
Should you invest $1,000 in Berkshire Hathaway right now?
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Berkshire Hathaway. The motley fool has a disclosure policy.
The Best Financial Stocks to Invest $1,000 in Right Now was originally published by The Motley Fool