3 Reasons to Sell Berkshire Hathaway Stock


I'm going to attempt something a little odd today, Fools. Even though Berkshire Hathaway stock makes up 3.7% of my real-life holdings, I'm going to be giving you three reasons to consider selling the stock today.

Why am I doing this?

Recently, Nobel Prize winner Daniel Kahneman visited Fool headquarters in Virginia. While visiting, he talked about how a number of different biases can lead us to believe we can predict the future with relative certainty. In reality, he argued, we are just deluding ourselves.

It got me to thinking about how I don't write enough about the risks of owning the stocks I own. So, though I don't plan on selling my Berkshire Hathaway stock anytime soon, I think it's healthy for me to practice and model this behavior.

1. Buffett and Munger aren't getting any younger

Source: ChinaFotoPress/Getty Images.

Berkshire Hathaway's amazing appreciation over the last half-century has been accomplished through the shrewd decision-making of CEO and Chairman Warren Buffett, and later, Vice Chairman Charles Munger. Buffett is 82 years old, and Munger is 89.

Judging by their performance and generally upbeat mood at this year's stockholder meeting, neither man is showing signs of slowing down. But that doesn't mean the sad day when they leave the company won't soon come.

The company's 2013 annual report states that: "Berkshire's Board of Directors has identified three current Berkshire subsidiary managers who, in their judgment, are capable of succeeding Mr. Buffett." One contender that is generally considered the front runner is insurance guru Ajit Jain. Buffett, in fact, has so much faith in Jain that he once quipped: "If Charlie, I and Ajit are ever in a sinking boat -- and you can only save one of us -- swim to Ajit."

While its comforting to know Warren has that level of confidence, investors should remember that Buffett and Munger have been the primary drivers of Berkshire's success over the decades.

2. It's too complicated
I like to keep my investing simple. Normally, I refuse to invest in a company if I can't explain to a kindergartener how it makes money. For Berkshire, I've broken that rule, and I'm not sure that's such a great thing.

For starters, the insurance underwriting industry can be extremely complex. It is here that Ajit has excelled, but the fact that it takes such a brilliant mind to adequately handicap risk shows that very few people can actually wrap their heads around the business.

Furthermore, this list of Berkshire subsidiaries -- taken from the company's website -- demonstrates the dizzying reach of the company -- from railroads like Burlington Northern Santa Fe, to See's Candy, and just about everything in between.

Source: Berkshire Hathaway.

Because of this, for many people, an investment in Berkshire Hathaway is more about investing alongside Buffett than it is investing in the underlying businesses (which brings us right back to my first point).

3. Berkshire Hathaway stock: low growth and no dividend
The final ding to an investment in Berkshire Hathaway is the fact that the company's prospects for significant growth are hampered by its sheer size. Currently, Berkshire has a market cap of $190 billion, with $162 billion in revenue just last year, and $44 billion in cash and cash equivalents sitting in the bank. When you accomplish that kind of size, it is very difficult to invest in anything that could possibly yield market-beating returns.

Usually, when companies get to this size, they reward shareholders in the form of dividends. Not so for Berkshire Hathaway, however. The company has only paid one dividend in its history, and that was a $0.10 payout all the way back in 1967!

What's a Fool to do?
These are all legitimate reasons to be concerned about owning Berkshire Hathaway stock. I have certainly committed the error of investing because of Buffett, rather than because I can understand all of the moving parts that are Berkshire. Although I'll keep this in mind when reconsidering my holdings at year's end, I am comforted by the fact that Jain is on board. And the slim chance for appreciation isn't a big concern, as I've included Berkshire in my portfolio for its stability, rather than growth.

Solid companies selling at depressed prices have consistently helped generations of the world's most successful investors preserve capital, minimize risk, and achieve long-term, market-trampling returns. For one such company, read our free report: "The One REMARKABLE Stock to Own Now." Just click here to get started.

The article 3 Reasons to Sell Berkshire Hathaway Stock originally appeared on Fool.com.

Fool contributor Brian Stoffel has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.