Should You Buy Berkshire Hathaway Stock Today?

Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) needs little introduction. You likely know that this company has been one of the best investments of all time, fueled by the investing prowess of its founder, Warren Buffett. Only one question remains: With shares zooming toward the $500 mark, is it too late for you to buy into one of the most iconic businesses of all time? You might be surprised by the answer.

Every Berkshire investor must understand these 2 things

Berkshire stock has compounded in value by roughly 20% per year for decades. A small investment could have turned into a large fortune over that time period if it had been invested in Berkshire shares. This fact alone has attracted scores of investors to Berkshire. But there are two things every investor should know about the company today.

First, Berkshire's size will make it incredibly difficult to repeat its historical success. It's not necessarily Berkshire's fault -- it's just the law of large numbers. With a market cap of $1 trillion, Berkshire will need to add another $1 trillion in value to double its stock price. When the firm was worth just $120 billion -- as it was in February 2009 -- it needed to add only $120 billion in value.

The issue is that there aren't even that many companies out there today that are large enough to have a meaningful effect on Berkshire's total value. Just ask Buffett himself. In his latest investor letter, Buffett confided that Berkshire's size allows for "no possibility of eye-popping performance," adding that there "remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others."

So while Berkshire may still be able to beat the market, its days of 20% average annual returns for decades at a time are likely behind it.

The second issue is the ever-present challenge of time itself. Warren Buffett is now 94, and his closest advisor, Charlie Munger, passed away last year at age 99. Losing both would undoubtedly be a blow to Berkshire's standing. But before you get too worried about this, there are a few other things you should know about Berkshire that should alleviate many of your concerns.

This is why Berkshire Hathaway stock remains a buy today

Berkshire's gargantuan size might prevent eye-popping returns over the next few decades, but as Buffett stressed himself in his latest investor letter, "Berkshire is built to last." That's because Berkshire's operating model has always been decentralized. That is, its holding companies are largely run as independent businesses. While there is some oversight from Berkshire itself, it is the responsibility of individual management teams to run Berkshire's sprawling portfolio of wholly owned and partially owned businesses. All these companies have been handpicked by Buffett and his team for selection. Given that fact, Buffett still believes that Berkshire "should do a bit better" than the average American business.

Concerns over Buffett's age are also likely overblown. Buffett has spent the last few decades ensuring that a proper succession plan was in place. Many of the people who will lead Berkshire after his passing have been with the company for decades themselves, and are partially responsible for Berkshire's impressive rise. In this way, Berkshire's legacy can outlive Buffett.

All in all, Berkshire simply isn't the company it once was. Looking ahead, even more could change, especially when it comes to leadership at the top. But Berkshire is structured specifically to avoid the issue of consolidated power. That is, Berkshire's value has always been generated by capable teams that empower quality businesses to think long term. This structural advantage will likely remain intact, even as Berkshire's market cap and executive team change over time.

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.