Although Wells Fargo is an excellent company, Berkshire Hathaway might be the best long-term stock to add to your portfolio.
Don't get me wrong -- Wells Fargo (NYSE:WFC) is one of the best-run banks in the world and still has strong potential for growth. The bank is more profitable than the rest of the big four and has done a much better job of managing risk. However, Warren Buffett's Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) is arguably the best stock to buy for the long run, and would make a smart addition to anyone's long-term portfolio.
In addition to the fact that these are all great businesses, Berkshire's collection of subsidiaries gives it several competitive advantages. An obvious advantage is diversification -- just because one or two of Berkshire's businesses experience tough times doesn't mean the others will be in the same predicament. Plus, many of Berkshire's businesses are recession-resistant. If the economy were to fall into recession, businesses like Pampered Chef would likely see revenue drop. However, businesses like Geico and Berkshire Hathaway Energy would do just fine.
Another advantage is financial flexibility. Since these businesses are part of the same company, Berkshire can choose to use their profits wherever they're needed. For example, if Duracell produces a higher profit than it needs to reinvest in its business, Berkshire can choose to use the money to help expand NetJets. Or, it can set profits from its businesses aside for future acquisitions or stock purchases. Buffett likes to have an 11-figure cash reserve at all times, and these subsidiaries create 61 sources that can potentially fuel this stockpile.
And last but not least, one of Berkshire's largest stock positions is Warren Buffett's favorite bank: Wells Fargo. Berkshire has been building a position in Wells Fargo for some time now, beginning with a $290 million investment in 1990. Now, Berkshire owns a stake in the bank worth $24.5 billion as of the company's latest SEC filings. In fact, the value of Berkshire's Wells Fargo stock makes up more than 7% of its total market cap as of this writing.
In his latest letter to Berkshire shareholders, Buffett emphasized that the company's willingness to invest large amounts of money in non-controlling stakes (like Wells Fargo) is a big advantage over peers. Not only does this broaden the company's potential investment pool from the companies it can buy in full to include any publicly traded stocks, but it also gives Berkshire more liquid assets that it could sell quickly if necessary. For example, if a massive and lucrative acquisition opportunity came up, Berkshire has more than $100 billion worth of stock it could potentially sell to finance it.
My point is that if you're building a long-term stock portfolio, an investment in Berkshire can get you into a diverse assortment of great businesses and stocks with a single investment. And with Warren Buffett and his expert stock-pickers making the company's investment decisions, the company should continue to produce market-beating performance for decades to come. For these reasons, I feel that Berkshire Hathaway is a great foundation on which to build your portfolio.