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Build A Portfolio Around Berkshire Hathaway Class-B Shares (BRK-B)

4 November 2009 10 Comments

BRK-B Split

Berkshire announced recently a 50-1 split of their class B shares which may make it easier for small time investors to pick up shares of BRK (think $68/share vs $3400/share).  As such, I’ve decided to document a strategy that could involve building a portfolio with these shares as a big part of the portfolio.

BRK-B As A Play On The U.S. Economy

Berkshire is a holding company with many businesses ranging from flooring to insurance to railroads.  It’s a pretty diversified way to play the U.S. economy.  Plus, you basically get the opportunity to have Buffett manage your money.  Therefore, as the part of the portfolio with exposure to the U.S. economy, you could consider dumping your money into BRK-B shares.

Other Allocations

If you put say a third of your portfolio into BRK-B, I would recommend putting a third into gold and other inflation hedges (perhaps other commodities plays).  The last third, I would probably put towards international exposure, specifically Asia.

So here is your portfolio design:

  • 33% into BRK-B shares – broad U.S. economy exposure plus hopefully you get some out-performance from the Warren Buffett factor
  • 33% into inflation protection – GLD, GDX, DBC, TIPS, maybe USO
  • 33% into international ETFs – EWC, FXI, AIA, etc.

This is a very simple portfolio design, but in some cases, simple is good, especially for new 20-something investors.  This is just one idea.  Hopefully, it may help you develop a structure for you to pursue as you invest money each month (or year or whatever).

Any thoughts?

10 Comments »

  • Daniel said:

    Hi, I actually work for a Warren Buffett company, so this post interested me. I wanted to get your thought on something. Is it better to invest in a Roth 401(k) or a Roth IRA? I know I want to start my 5 years in a Roth IRA before April 15th, and I get no compnay match. After I have my Roth IRA started, which is it better to contribute to? I appreciate the advice.

  • 20smoney (author) said:

    Well, if you don't get a company match, there's not a huge preference from my point of view. I guess you should if you can do the pre-tax contributions, the numbers work out better because you're limiting the money you're sending to uncle sam, and you have more money to grow (of course you get taxed on the other end).

    If you're saving a lot, you might consider doing both so you can get tax benefits on the front end and on the back end. "spread your tax risk" since who knows what the tax code will look like in 40+ years.

  • MCL said:

    Berkshire Hathaway is definitely a holding meant for long term investing. I think the problem with many people in their 20s, such as myself, is that we want to see quick returns. I held BRKB for over a year after the market crashed and almost every single one of my other stocks outperformed it (20+ stocks). Warren Buffett is almost 80 and the stock will most certainly take a hit if/when he passes. I sold out of BRKB not too long ago and reallocated my money to other stocks in my portfolio. It's been one of the best moves I've made so far.

    Sure Berkshire Hathaway is extremely well capitalized and Buffett possesses a knack for finding high potential companies, but again, you need to be extremely patient. If you're seeking diversification, there are may options in terms of mutual funds and ETFs that you can invest in.

  • Joe said:

    Interesting portfolio idea….did you do any backtesting?

    Also, any idea when the BRK.Bs are splitting? Do you think it will spike when they split because of new demand from smaller investors who can now afford it, or are individual investors too small to move the price that much?

  • 20smoney (author) said:

    I doubt it will spike. If it does, I'd definitely possibly sell into it.

    I haven't done backtesting but would be very interested to see some done.

  • Storm said:

    Joe, Of course the price will spike. Also, if it qualifies for inclusion to the S&P 500 (only trading volume keeps it out and volume will increase due to smaller investers being able to buy in) then all such index funds are obligated to buy it. Especially the unmanaged, computer controlled kind. And that will be get a lot more volume. Which will beget a higher demand. Which will beget a higher share price.

    I personally expect it to run up to $100/share in a relatively short time before it starts to settle. I don't expect it to drop below $80/share for a while after that.

    I don't own any shares and won't be buying any. I'm all tied up in other stuff so I STILL won't be able to afford it.
    Congrats to those of you that can!

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    My favorite Warren Buffett quote is this: Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.

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