Sunday, February 18, 2007

Four Ways to Invest in Berkshire Hathaway if You Don't Have $108,000

Last week, I posted an article about the books on trading and investing like Warren Buffett, the founder of Berkshire Hathaway (BRK-A), the highest priced stock and one of the most successful companies during the last half century. But with the stock selling at over $108,000 per share, it is hard for the average investor to invest in the company. Fortunately, there are several alternative ways to invest in the stock.

The easiest way is by investing in the Class B shares of Berkshire Hathaway (BRK-B), which represent 1/30th of the value of the Class A shares and have 1/200th of the per-share voting rights. But even those shares are extremely high priced at over $3500 per share.

A second way to invest in the stock is by owning shares in the Sequoia Fund (SEQUX), a mutual fund with a large position in Berkshire Hathaway. Almost 30% of their portfolio is invested in the stock. Some of the other stocks in their portfolio include:
Progressive Corp. (PGR) 15.6% of the portfolio
Mohawk Industries (MHK) 7.3%
T J X Companies (TJX) 6.4%
Bed Bath & Beyond (BBBY) 5.7%
The minimum investment in Sequoia is $1,000.

A third way to invest is by investing in the Fairholme Fund (FAIRX) which has a little over 14% of their portfolio invested in Berkshire. Although the concentration is not as significant as Sequoia, it is the number one holding in the portfolio. Fairholme's other major holdings include:
Canadian Natural Resources (CNQ) 12.19% of the portfolio
Echostar Communications (DISH) 9.6%
Penn West Energy Trust (PWE) 6.7%
Mohawk Industries (MHK) 4.7% [surprisingly, this is also one of Sequoia's top five]
Minimum investment is $2500.

There are other funds which have around five percent of their portfolio in Berkshire, such as Legg Mason Partners Appreciation Fund (SHAPX) but the percentage isn't enough to be a close play on Berkshire.

The last way is to create a portfolio that emulates Berkshire's holdings of publicly traded stocks, however, this wouldn't cover Berkshire's holdings of non-public stocks. In addition, it would involve purchasing many different stocks, so you would be better off just buying the Class B shares. But if you just want to pick and choose the "best" of Berkshire's holdings, here is the list of stocks it owns:
American Express Co. (AXP)
American Standard Companies (ASD)
Ameriprise Financial, Inc. (AMP)
Anheuser-Busch Cos. (BUD)
Canadian National Railway Co. (CN)
The Coca-Cola Company (KO)
Comcast (CMCSA)
Comdisco (CDCO.OB)
ConocoPhillips (COP)
Costco Wholesale (COST)
Diageo PLC (DEO)
First Data Corporation (FDC)
Gannett (GCI)
General Electric (GE)
The Home Depot (HD)
H&R Block Inc. (HRB)
Iron Mountain (IRM)
Johnson & Johnson (JNJ)
Lexmark International (LXK)
Lowes Companies (LOW)
M&T Bank (MTB)
Moody’s Corporation (MCO)
Mueller Industries (MLI)
Nike (NKE)
OSI Restaurant Partners (OSI)
PetroChina (PTR)
Pier 1 Imports (PIR)
Procter & Gamble Co. (PG)
Sealed Air (SEE)
ServiceMaster (SVM)
Shaw Communications (SJR)
SunTrust Banks (STI)
Target Corp. (TGT)
Tyco International (TYC)
United Parcel Service (UPS)
Wal-Mart Stores Inc. (WMT)
The Washington Post Company (WPO)
Wells Fargo (WFC)
Wesco Financial Corporation (WSC)

Author owns PWE, KO, COP, UPS, TYCO and calls on JNJ.

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1 comment:

Steve Balsam said...

Unfortunately, the Sequoia Fund is closed to new investors.

Buying the B shares is the best way to go for a smaller investor. I was able to purchase a small order (5 B shares) at the market price without any trouble through my Fidelity online brokerage account.

A year earlier, I had used a full service broker to purchase 5 B shares, and the broker carried out the trade at a material markup to the market price. (I am not talking about the commission but the actual purchase price for the shares). Apparently, brokers sometimes sell their own inventory of shares at a higher-than-market price to customers ordering less than a "round lot" of shares (usually 100 shares of a stock).

So, if you're ordering a small number of shares, it may pay to use a limit order at the current price.