When I bought the Vanguard S&P 500 Index Fund I wrote that I invested only about 25% of my cash into this fund because what I did not want to do was invest all my money at once and then have the stock market fall sharply. Boy am I glad of that decision.
The stock market last week was going through quite the sell-off and I had been looking at buying Berkshire Hathaway if the market continued to sell off. Earlier this summer I had written an article about Berkshire where two analysts had given conflicting opinions about the direction of Berkshire. I had finished that post by asking the question “Is Berkshire heading to $100,000 a share or $200,000.” At that time, Berkshire (BRKA) was trading at about $122,000 a share, down from a high of $147,000 in April.
I am a big fan of Warren Buffet and I like his investment strategy. He has been sitting on a ton of cash and he has been using it to either buy companies outright, or take positions in company’s at very attractive rates. For example Berkshire made a $5 billion investment in Goldman on September 23 and a $3 billion investment into General Electric on October 1. GE and Goldman paid a premium for Buffett’s money and support. Buffet’s investment came in the form of preferred shares that carry a hefty annual dividend of 10%. That is a pretty good return.
For those of us who cannot $100,000+ for Berkshire common stock, they offer a “B” version that is 1/30 of the price. That stock symbol is BRKB and this is what I was looking to buy.
Berkshire Hathaway Stock Price
The B Shares had been as high as $4,650 on October 3rd and had been dropping since along with the rest of the market. On Monday I put in an order to buy 1 share of Berkshire B at $3,600 GTC. That meant I was willing to pay $3,600 or lower for the stock and my order would be open until I cancelled it or I purchased the stocks. When I placed the order the stock was trading around $4,000 and I thought that the stock would go a little lower.
Then the meltdown came on Friday. The markets worldwide got hammered and stocks it the U.S. crashed at the open. Somebody, probably a distressed hedge fund, dumped Berkshire at the open and the stock price fell to $3,000 a share down over $800 from its close on Friday. My order got filled at $3,000!
I was ecstatic. The stock cost me 20% then I was willing to pay for it and I was able to buy it because I had not invested all my money when the market was thousands of points higher. By taking as stepped or phased approach to investing I was able to buy what I think is a really good stock on sale. Berkshire closed Friday at $3,780 down $75 for the the day. With that close my Berkshire investment is up 26%!
I know that I got lucky with the price that I bought Berkshire at, but I put myself in that position by not investing all my money at once and by using a Goof-Till-Cancelled order at a price lower than where the stock was trading in a volatile market.
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