Is Berkshire Hathaway Inc. Class A the best choice in the world?

Continuing from last week, our topic today is about Berkshire Hathaway Inc. that is run by the legend Warren Buffett. “Berkshire Hathaway Inc. is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States. The company wholly owns GEICO, BNSF Railway, Lubrizol, Dairy Queen, Fruit of the Loom, Helzberg Diamonds, FlightSafety International, Pampered Chef, and NetJets, and also owns 43.63% of the Kraft Heinz Company, an undisclosed percentage of Mars, Incorporated, and significant minority holdings in American Express, The Coca-Cola Company, Wells Fargo, IBM and Restaurant Brands International.”(Wikipedia) The list goes on and on, just to show how powerful Berkshire Hathaway Inc. is. Needless to say, Warren Buffett is not only a famous investor but also a self-made billionaire who leads Berkshire Hathaway to its glory. We can talk about him or the Berkshire Hathaway Inc. all day long, however, for now we should not indulge ourselves in amazing Mr. Buffett too much, but to keep a cool head and think whether his Class A stock (BRK-A) is really worth it. Let’s see how good BRK-A is in comparison to our last week SPY, and whether to invest in BRK-A or not.

I collected historical monthly data of BRK-A and SPY from Yahoo! Finance, for the period from 01/01/2000 to 01/01/2017. Here is the result after some simple analyzing.

As we can see, when putting together, BRK - A outperforms SPY in return, however it also has higher risk (higher standard deviation). So are you thinking you clearly have an upper hand with BRK - A? Please hold on, because I have an option that is even better than BRK - A!!!

How can I come up with a good option like that? I mix the 2 stocks - BRK-A and SPY - together, by making 100 portfolios that have different allocation of these 2 stocks. Let's see the results in a scatter plot graph:

The X-axis represents risk, or standard deviation, while the Y-axis shows the return. What is the best portfolio among these? I pick the one that has highest risk with lowest return, or in other words, the one that has highest Sharpe Ratio. Here is a part of that mixing result in number:

The one highlighted produces the best outcome (also known as the Optimal Risky Portfolio) and has 87% of BRK - A and 13% of SPY. This is also my recommendation. If you want to invest in BRK-A, please consider buying 87% of BRK - A and 13% of SPY for your portfolio to archieve a better result.

Back to the question from beginning, now we can answer for sure that BRK - A is still not the best investment in the world. By mixing stocks together and create more diversified portfolios, we can always archieve better results than investing in individual stocks.

Data set and calculations can be found here.