Buy American International Group Inc (AIG) & Berkshire Hathaway Inc. (BRK.B)? This Man Thinks So

Buffett’s biggest holding is Wells Fargo & Co (NYSE:WFC)

For example, Berkshire holds a significant stake in Wells Fargo & Co (NYSE:WFC) — roughly 7.5% of the bank.

As Berkshire’s largest holding, Buffett wouldn’t shoot down anyone’s idea to invest in Wells Fargo. The bank sports a solid 3.2% dividend and trades with a below-market PE ratio of 10.8.

Despite new banking regulations, Buffett told attendees at Berkshire’s recent shareholder meeting that he continues to like Wells Fargo and doesn’t expect another bubble to originate from the banking system anytime soon.

No more middleman

So why not just cut out the middleman and buy Wells Fargo’s stock directly? Because, as Tilson said, Berkshire is much more than that. About half of Berkshire’s holdings are private companies.

Berkshire holds dozens of companies outright, including GEICO, Fruit of the Loom, Dairy Queen, and Lubrizol. The only way to get access to these companies is by buying Berkshire stock.

The Berkshire bear case

But buying Berkshire might not be such a simple slam dunk after all. CNBC contributor Doug Kass was featured at the Berkshire shareholder meeting this year as the token bear. Kass is short shares of Berkshire.

Kass’ bear thesis is largely composed of two parts: issues of succession and issues of size.

No doubt, Berkshire’s impressive performance in recent decades has been driven by the business prowess of Buffett and Charlie Munger. The former is 82, the latter is 89, and neither is immortal.

When Buffett and Munger are gone, can Berkshire continue to deliver such impressive results? Kass doubts it.

Kass’ second issue is one of size. Over the last several years, Berkshire has grown to be a tremendously large company. Kass notes that in years past, the firm hunted for acquisition targets that might be referred to as “gazelles” — today, the firm must buy “elephants.”

As Berkshire is so large, it might be expected to perform like a stock index, and is therefore incapable of outperforming the broader market.

Tilson’s picks

As opposed to Tilson’s Spark Networks and Netflix picks, AIG and Berkshire appear to be more solid investments. Yet, they aren’t without issue. Investors should do their own homework before following anyone into a trade.

The article Why Whitney Tilson Thinks You Should Buy AIG, Berkshire Hathaway originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

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