Berkshire's Trillion-Dollar Milestone: A Wake-Up Call for Diversification in the Tech-Dominated Market?

On 28th August, when Berkshire Hathaway’s Class A shares (BRK.A) crossed the $695K mark, it became the first American non-tech trillion-dollar company. At one point, the Warren Buffet-led conglomerate’s Class A shares even breached the $740K mark.?

Over the last couple of decades, stock market participants have favored specialist companies over conglomerates. However, in 2024, according to Wall Street Journa l Berkshire Hathaway marginally outperformed the S&P 500 index.

Today, let us discover what kind of company Berkshire Hathaway is and what its stock price rally could tell us about market expectations.

Old economy focus

Berkshire Hathaway can be described as a holding company that mainly invests in businesses like insurance, manufacturing, retail and home goods, and transportation and logistics. Many of the businesses Berkshire Hathaway invests in are a part of the old economy, which is formed of traditional businesses that have not changed much with technological advancements.

However, these industries keep the economy moving; hence, many see Berkshire Hathaway as a mirror for the American economy.

Old economy companies do not exhibit the kind of growth tech companies can. After all, it took Berkshire Hathaway more than 44 years to become a trillion-dollar company. In contrast, Meta Platforms achieved this in less than 10 years.?

However, old-economy companies are less likely to go out of business since they deal in necessities and not wants.

Conglomerate on a selling spree

Halfway through 2024, Berkshire Hathaway’s cash reserves rose to a whopping $277 billion because of the selling spree at the company. This figure was just $168 billion by the end of 2023. Notably, in Q2 2024, Berkshire Hathaway sold off nearly half its stake in Apple, its biggest holding by value.

In the same quarter, Berkshire Hathaway reduced its stakes in Snowflake, Capital One, T-Mobile, Chevron, Bank of America, Floor & Decor Holdings, and Louisiana Pacific while increasing its stake in Chubb and Occidental Petroleum.

Interestingly, over the last 2 years, Berkshire Hathaway has been reducing its stake in BYD, the Chinese EV company. From 2008 to August 2022, Berkshire Hathaway held a?20.5% stake in BYD. As per the?latest data, this figure has dropped to 4.9%.?

Call for diversification?

Berkshire Hathaway is a holding company that is currently on a selling spree. Moreover, it seems to be moving away from tech companies which tend to have high growth rates. So, the timing of Berkshire Hathaway becoming a trillion-dollar company is quite peculiar. Typically, when a holding company moves away from high-growth sectors, growth expectations will drop and so will its stock price.

However, Berkshire Hathaway is outperforming the?S&P 500.

From this, we can surmise that investors may have rekindled their appreciation for conglomerates and the diversification benefits they offer. Investors might view the current stock market as volatile and may want to reduce the risk exposure in their portfolio by investing across various sectors.

This view is backed by the fact that we experienced a surge in allocations to international equity ETFs in the first half of 2024.

Is tech overvalued?

Warren Buffett is a well-known value investor. He believes in buying fundamentally strong businesses that are undervalued to sell them when their value increases. He is also known to prefer businesses with economic moats or sustainable competitive advantages.

So, when Warren Buffett sells stakes in tech companies, many assume that, in Buffet’s opinion, these companies are now over-valued, have lost their moats, or aren’t fundamentally strong anymore, or a combination of these problems has occurred.

So, at present, investors may have become apprehensive of the valuations of some of the tech companies.

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Berkshire Hathaway’s entry into the trillion-dollar club is a key moment in US financial history that challenges the dominance of tech giants and also signals a shift in investor sentiment. This highlights the value of having a diversified portfolio and investing in traditional industries in a volatile market.

As Warren Buffett's conglomerate rebalances its holdings, it raises questions about the sustainability of tech valuations and the resurgence of old economy stocks.

We believe that investors must take this as a sign to reassess their strategies and improve the diversification in their portfolios.

Eqvista empowers investors to navigate this tumultuous market with precision through our comprehensive and insightful portfolio valuation services. Contact us to know more!