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For those that don't know, Berkshire Hathaway is the company owned by the legendary investor Warren Buffett. He invests in a bunch of stocks that he thinks can beat the market. As a normal investor, you have two options to get in on Buffett's success. The first is to invest in Berkshire Hathaway stock BRK.B. The second is to invest in all the stocks that Buffett has chosen. Some brokerages like M1 Finance provide a quasi ETF that replicates Buffett's portfolio. I'm wondering if there is a difference between these two options.

Questions

  1. What does it mean in layman terms to invest in BRK.B? The concept of investing in a company that, in turn, invests in other companies confuses me on what actually drives the price of BRK.B.
  2. Why do the graph shapes of BRK.B and the Buffett quasi ETF look so similar? How can investors so keenly track all the stocks in the ETF and apply the same sentiment to BRK.B?
  3. BRK.B does not pay a dividend. The individual stocks in the Buffett quasi ETF do pay dividends. Why would one invest in BRK.B and lose out on dividends?

BRK.B individual stock

Source: Charles Schwab

BRK.B price chart


Buffett quasi-ETF stocks

Source: M1 Finance. This includes reinvestment of dividends and capital gains. They don't provide an option to just look the the quasi-ETF price graph. So these two graphs isn't an apples to apples comparison. You should just look at the general shape and the ups and downs.

Buffett quasi-ETF price chart

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  • Those two charts are not even close to similar. I cannot for the life of me fathom why anyone would consider buying someone's attempt to track the buffman's investments when you could just buy BRK.B
    – quid
    Jan 10, 2019 at 8:37
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    Please be aware that some of Berkshire-Hathaway's holdings are wholly-owned by them, for example GEICO, and therefore not publicly traded and also therefore not available to any ETF.
    – chili555
    Jan 10, 2019 at 21:56

1 Answer 1

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What does it mean in layman terms to invest in BRK.B?

Obviously, you are buying a partial ownership in BH, which entitles you to that proportion of assets upon liquidation, potential dividends (see below) and voting rights.

Why do the graph shapes of BRK.B and the Buffett quasi ETF look so similar?

Since BH is primarily a holding company now, its value is dominated by the value of its holdings, so it's not surprising that the value of the holding company tracks the value of its holdings quite nicely. That said, the ETF does seem to have significant tracking error (especially recently) which might indicate that the market values the conglomerate and its management skill more than the sum of its holdings.

BRK.B does not pay a dividend. The individual stocks in the Buffett quasi ETF do pay dividends. Why would one invest in BRK.B and lose out on dividends?

Dividends are not "free money". when a company pays a dividend, it is cash out the door, so the value of the company (stock) goes down by an equal amount. One main reason a company pays a dividend is to provide cash (not return) to its shareholders without forcing them to sell their shares. Financially, it is an indicator that the company cannot use the cash to grow more than other investments. So NOT paying dividends is not necessarily a bad thing.

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