Berkshire Hathaway offers great value vs. S&P 500

You may find the comparison between Berkshire and the S&P 500 silly as the S&P 500 is a broad diversified share index and Berkshire is only one company. It is important to understand that Berkshire is an investment company holding approximately 50 listed stocks and controls somewhat 60 privately held subsidiaries within various industries. This means that statistically you are covered as far as diversification goes. In theory Berkshire may be the only US stock you have to own. I also keep reading that Berkshire is an insurance company. However for 2014 only USD 7b out of USD 24.5b in EBT for the group stemmed from either insurance or insurance related investment activities. The group´s total non-insurance EBT has increased from 3b to 17.5b from 2004 to 2014. In my perception Berkshire is a large mutual fund/ private equity fund combination that have a tendency to beat the broader market.

Why you should buy Berkshire instead of a S&P 500 ETF: 

• Berkshire has a 0.9 beta, which means that it may hold up better than the S&P 500 in the case of a correction
• Berkshire has somewhat of a support level if the stock falls below the 1.2x book value threshold  as such pricing may trigger a stock buyback program (Warren Buffet stated that 1.2x book value is a bargain compared to intrinsic value). The stock is currently priced at 1.27x book value. For the last ten years the stock has not been priced below 1.05x book value
• Berkshire holds huge amounts of cash which it is ready to deploy if a large market correction should occur. The investment company has a track record of being offered advantageous deals during downturns 
• Berkshire has proved above average performance by following a simple investment strategy: To buy unique but simple businesses with strong positions in the market, with solid management at reasonable prices. The S&P 500 basically holds the 500 largest listed companies in the US, including the ones with weak business models and poor management
• Berkshire has proven over time the ability to grow their book value at a superior rate compared to the S&P 500. Although their absolute return performance has decreased as the group has grown larger, they still have a ROIC of 8.88 % vs. a WACC of 8.15 % meaning that their active investing still produces value above the cost of capital  
• You avoid to invest in the "blue chips of the future" companies such as Amazon, Tesla, Netflix and Facebook which are partly responsible for the current bloated pricing of the S&P 500 with their stretched valuations 
• And at last valuation:                                                                                                  

Berkshire is significantly cheaper on a trailing P/E basis than the S&P 500 (currently 13.89x vs. 20.25x)

                               Source: Gurufocus

Berkshire´s lower P/E does not reflect its superior ability to grow earnings over time

                               Source: Gurufocus

Disclosure: I am long BRK.B. 

I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it. I have no business relationship with any company whose stock is mentioned in this article.