Berkshire Hathaway: Investing Guide For Indians

Berkshire Hathaway is an American multinational conglomerate holding company that offers products and services in insurance, manufacturing, retail, and more. The company is engaged in diversified investments across various sectors and is traded under the ticker symbols BRK.A and BRK.B on the New York Stock Exchange (NYSE). Indian investors interested in purchasing Berkshire Hathaway shares can do so directly by opening an international trading account with a broker that allows access to the NYSE and supports trading in US stocks, or indirectly by investing in mutual funds and Exchange-Traded Funds (ETFs) that offer exposure to global stocks.

Opening an international trading account

To open an international trading account, you can follow these steps:

Firstly, it is important to note that overseas investment by Indian residents is regulated by Indian exchange control regulations. The Government and the Reserve Bank of India issued a framework that allows for an overseas investment of up to $250,000 per financial year (April to March) for permissible investments and other purposes, such as private visits outside India, gifts, donations, and education abroad. This is known as the Liberalized Remittance Scheme (LRS).

Now, to the process of opening an international trading account:

• Choose a broker: You can either choose an Indian broker with international presence or presence in India, such as ICICI Direct, HDFC Securities, Kotak Securities, and Axis Securities, or go with a foreign broker with a presence in India, like Charles Schwab, Ameritrade, or Interactive Brokers.
• Open a trading account: Contact your chosen broker and initiate the account opening process. You will need to provide the necessary documentation, which typically includes proof of identification and address. The account activation process can take anywhere from a few minutes to a few hours.
• Fund your account: Once your account is activated, you will need to deposit funds into your account. For investing in US-based stocks, you will need to deposit funds in US dollars.
• Start investing: After funding your account, you can start investing in foreign stocks, including Berkshire Hathaway Inc. Hld B (BRK.B).

It is important to note that international trading accounts come with additional costs, such as higher margin money requirements and brokerage charges. Additionally, there is a risk of currency exchange, which can affect your profits.

By following these steps, you can open an international trading account and start investing in foreign stocks, including Berkshire Hathaway, from India.

Buying fractional shares

Fractional shares allow investors to purchase a slice of a share instead of the whole thing. This makes it possible to invest in high-priced stocks without needing to empty your bank account. For example, if a stock trades at $100 per share and you invest $50, you will own 50% of a share.

Fractional shares are particularly beneficial for investors in India, where some shares trade at extremely high prices. For instance, MRF, Honeywell Automation, Page Industries, and Shree Cements trade at anywhere between ₹25,000 and ₹1,10,000 per share. This is out of reach for most retail investors in India. Fractional shares would allow investors to access these stocks without needing to pay a large sum of money for a single share.

Fractional shares also offer the following benefits:

• Accessibility: They allow small investors to access high-priced stocks that would otherwise be unaffordable, increasing the inclusivity of the stock market.
• Diversification: Fractional shares enable investors to spread their investments across a wide range of stocks, reducing risk.
• Cost-efficiency: Investors can allocate their funds more efficiently, leading to better utilization of their capital.
• Risk management: Owning fractional shares in multiple investments can mitigate the impact of poor performance by a single stock on an investor's overall portfolio.
• Rupee-cost averaging: Investors can employ a dollar-cost averaging strategy more easily, consistently investing a fixed amount of money at regular intervals to buy more shares when prices are low and fewer when prices are high.

However, there is one notable disadvantage to owning fractional shares: investors may not be entitled to voting rights in the company.

In the US, fractional shares are facilitated by brokers, who can buy and hold shares in their own name. However, in India, brokers cannot have shares in their name and cannot act as dealers. Therefore, fractional shares cannot be issued in the same way as in the US. For this reason, the Securities and Exchange Board of India (SEBI) is working with the Ministry of Corporate Affairs to amend the Companies Act to allow Indian investors to own fractional shares.

Understanding the company's financials

Berkshire Hathaway Inc. is a holding company with subsidiaries in a variety of industries, including insurance, manufacturing, and retail. Its main business and source of capital is insurance, from which it invests the float in a broad portfolio of subsidiaries, equity positions, and other securities.

The company's latest financial results, for the third quarter of 2023, showed that total revenue from its core business operations rose 21.2% to $93.2 billion compared to the same period in 2022. However, including losses on its investment and derivative contracts, the company's revenue dropped to $63.4 billion. The company's net loss attributable to its shareholders rose 356% to $12.8 billion in Q3 2023, while its Earnings Before Taxes (EBT), a profitability metric for its individual business segments, was a loss of $17 billion, up 298% from the previous year.

Berkshire Hathaway's insurance business, which includes GEICO, Berkshire Hathaway Primary Group, and Berkshire Hathaway Reinsurance Group, generated the most revenue and earnings before taxes for the company in Q3 2023. The company's other business segments include railroad (BNSF), Berkshire Hathaway Energy (BHE), Pilot Travel Centers (PTC), manufacturing, McLane Company (wholesale distribution), and service and retailing.

Berkshire Hathaway also owns a large portfolio of equity securities and derivatives, with significant stakes in prominent companies such as Apple, Bank of America, Coca-Cola, and American Express. The performance of these investments can heavily impact the company's reported financial performance, and changes in its investment portfolio can make the company's earnings more volatile.

In terms of overall financial performance, Berkshire Hathaway has delivered strong shareholder returns over the long term. Between 1965 and 2023, the company's shareholder returns amounted to a compound annual growth rate (CAGR) of 19.8%, compared to a 10.2% CAGR for the S&P 500. However, in the ten years leading up to 2023, the company's CAGR was 11.8%, slightly lower than the S&P 500's 12.0% CAGR.

Choosing a broker

When choosing a broker to buy Berkshire Hathaway shares, you should consider the following factors:

• Fees: It is important to consider the fees charged by the broker. Some brokers charge high commissions for buying and selling stocks, while others offer commission-free trading. It is also important to consider any potential inactivity fees, especially if you plan to hold your shares for the long term.
• Safety and Legitimacy: It is crucial to choose a safe and legitimate broker that is regulated by a top-tier regulator such as the US Securities and Exchange Commission (SEC) or the UK's Financial Conduct Authority (FCA). This ensures that your investment is protected.
• Access to NYSE: Since Berkshire Hathaway is traded on the New York Stock Exchange (NYSE), you will need to choose a broker that allows access to this exchange. Not all brokers offer access to the NYSE, so this is an important factor to consider.
• Overall Service Quality: In addition to low fees and safety, it is also important to consider the overall service quality offered by the broker. This includes user-friendly trading platforms, easy funding options, and useful research tools that can help you make informed investment decisions.

Based on these factors, here are some of the top brokers that you can consider for buying Berkshire Hathaway shares:

• Interactive Brokers: This broker offers extremely low fees, a wide range of products, and many great research tools.
• EToro: eToro offers free stock and ETF trading, seamless account opening, and social trading features.
• Fidelity: Fidelity offers commission-free US stocks and ETFs, great trading platforms, and extensive research tools. They also offer a wide range of US and international stocks.
• Zacks Trade: Zacks Trade is known for its low fees, extensive stock and ETF selection, and great customer service.
• Charles Schwab: Charles Schwab offers free stock and ETF trading, outstanding research tools, and excellent customer service.

When deciding where to buy your Berkshire Hathaway shares, be sure to compare these brokers based on your specific needs and preferences. Consider factors such as fees, safety, access to exchanges, and the overall quality of services offered.

Additionally, if you are an Indian investor, you can consider opening an international trading account with Angel One to purchase Berkshire Hathaway shares directly.

Placing a buy order

Once you have chosen a broker to buy your Berkshire Hathaway shares, you can place a buy order by following these steps:

Step 1: Open a brokerage account

Start by registering your details, providing information about your investment experience, and verifying your identity by uploading official documents. This process is typically done online and can be completed quickly. However, after registration, your broker will need some time, ranging from a few minutes to a couple of days, to confirm your account before you can start trading.

Step 2: Deposit money into your account

To purchase Berkshire Hathaway stocks, you must first deposit funds into your broker account. Commonly, you can deposit money through a bank transfer, but some brokers also accept credit/debit card payments or electronic wallets like PayPal. Deposits are typically free, and most brokers do not have a minimum deposit requirement.

Step 3: Find and buy Berkshire Hathaway shares

Locate Berkshire Hathaway within your broker's trading platform by using the search bar and entering 'Berkshire Hathaway' or its stock exchange symbol, BRK.A for Class A shares and BRK.B for Class B shares. Some brokers also allow you to search for stocks based on country or sector. In this case, Berkshire Hathaway is a US-based Financial Services company known as a multinational conglomerate holding company.

Once you've found Berkshire Hathaway, decide on the number of shares you want to buy, and click the 'buy' button. Many brokers also offer the option to buy fractional shares, allowing you to purchase Berkshire Hathaway shares for any dollar amount, even if the price of a whole share is higher.

When placing your buy order, you can choose from different order types. A 'market' buy order purchases the stock immediately at the current market price, while a 'limit' order lets you set the exact price at which you want to buy the shares.

Frequently asked questions