Personal Finance

How Risky Is Berkshire Hathaway, Inc.?

BRK.B Price to Book Value Chart

Warren Buffett-led Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) has a track record of exceptional performance. In fact, over the past 50 years, Berkshire's stock has risen at an annualized rate of 20.8%. No stock capable of these returns is without risk, but if you're a long-term investor, you may be surprised at how low-risk Berkshire Hathaway is.

BRK.B Price to Book Value Chart

BRK.B Price to Book Value data by YCharts

Buffett has said that he would consider the stock to be extremely cheap at 1.2 times book value, at which point Berkshire would happily buy back its own stock. In fact, he said that buybacks at this level "would instantly and meaningfully increase per-share intrinsic value for Berkshire's continuing shareholders."

On the other hand, Buffett has also called the stock expensive (from a short-term perspective) when it approaches two times book value. At that price level, Buffett has said, it could potentially be many years before the investor could realize a profit. As I write this, Berkshire trades for 1.47 times book value, making it neither cheap nor expensive in a historical context -- although, if anything, it's a little on the cheaper side.

Speaking of expensive and cheap stock, it's worth noting that there are two classes of Berkshire stock available to investors. The Class A shares are the original Berkshire shares and are much more expensive -- as of this writing, they trade for more than $238,000 per share . The Class B shares are the ones accessible to most investors, and they represent 1/1500 of the equity of the A shares, and therefore trade for about the same fraction of their price, about $158.

Iif you plan to hold Berkshire shares for the long haul, you don't need to obsess over the valuation. One suggestion: dollar-cost averaging into a position in Berkshire is a smart way to go -- this way you'll buy more shares when it's cheap and fewer when it's expensive. In fact, this is how I've built my own position in the stock without worrying about whether it was a good time to buy.

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Matthew Frankel owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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