If the market collapses I’ll be happy to own this stock

The market rally over the past 11 months has been nothing short of remarkable. Since its low at the end of March after the COVID-19 pandemic ravaged the U.S. economy, the S&P 500 increased by 75%. The highly technological Nasdaq did even better, with the Nasdaq Composite Index more than doubling from the lows.

This performance left many investors worried that the market could be a little overheated, and that we could be due to a correction or a crash. But I am not. While we can certainly see a downturn in the market, long-term investors should welcome the dips as opportunities to buy great companies at a discount. With actions like Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) forming the backbone of my portfolio, I have absolutely no concerns about the long-term direction of my net worth.

Berkshire Hathaway in a nutshell

Most investors know Berkshire Hathaway as the company that made Warren Buffett rich, but many don’t know exactly what Berkshire is doing. The answer is that Berkshire itself doesn’t do much; it is a holding company.

Berkshire has more than 60 subsidiaries in various industries. Some well-known brands that are part of the Berkshire Hathaway universe include auto insurance giant GEICO, Brooks running shoes, Duracell batteries, Fruit of the Loom, Dairy Queen, and Pampered Chef clothing, to name a few. name a few.

In addition, Berkshire has a massive stock portfolio worth around $ 277 billion at the time of writing. About $ 117 billion is in the form of Apple (NASDAQ: AAPL) stock, but there are dozens of different stock positions in a variety of industries.

Last but not the least, Berkshire prefers to keep a ton of cash to take advantage of opportunities to acquire more companies and buy more stocks. In fact, the word “tone” probably doesn’t do it justice. At the end of the third quarter, Berkshire had more than $ 145 billion in cash and cash equivalents on its balance sheet.

Boring in all the right ways

Obviously, Berkshire Hathaway’s businesses aren’t as exciting as some of the big tech companies that are making most of the headlines these days. Berkshire will never quadruple in less than a year like this Zoom (NASDAQ: ZM) was also not called a revolutionary innovator as You’re here (NASDAQ: TSLA). But it’s OK. Berkshire is certainly boring compared to many popular stocks today, but it’s boring in the right way for long-term investors.

The main takeaway is that most of Berkshire’s business, as well as the investments in its equity portfolio, have been selected for their resilience. Think of major Berkshire subsidiaries such as GEICO, Duracell, BNSF Railway, and Berkshire Hathaway Energy. They all sell products or services that people need, even though the economy is in terrible shape. The same can be said of many of Berkshire’s major stock market investments, such as Bank of America (NYSE: BAC), Coca Cola (NYSE: KO), and Verizon (NYSE: VZ). There will always be a demand for safe places to keep money, food and drink, and reliable ways to stay connected.

Not only that, but Berkshire’s huge stock of cash also allows the company to enjoy tough savings and grow the money while investments are cheap. For example, the company’s investment in Bank of America arose in the wake of the financial crisis when few companies had billions of dollars in cash.

How does Berkshire actually stand up through tough times?

So far we’ve seen that Berkshire should theoretically perform well no matter what the stock market or the economy is doing. But the proof is in Berkshire’s 56-year record. Since 1965, the first year Buffett ran the show, the S&P 500 has generated negative total returns 12 times. Berkshire has outperformed the S&P in all but two of those years, and often quite broadly. Of course, Berkshire’s strong performance in good times has certainly been the main driver of its massive outperformance over time, but the company’s ability to beat the market easily during bad years has been almost as important.