BHIP Update

As I detailed in a post several months ago, I have created a small account using the Loyal3 investing platform. I am using it to demonstrate how small, incremental savings put aside in an intelligent way can gradually grow to something meaningful.

I’ve been putting in $10 every two weeks or so into Berkshire Hathaway stock. Because Loyal3 is fee free, I can dollar cost average into the position without getting a ton of capital wrested from me in commission fees. In my opinion this is a great step toward making investing more accessible to the general public. The list of companies to choose from is still pretty small, but it seems to be growing every few months.

The BHIP is now over $148 in value, which correlates to slightly over 1 full share in ownership! Now, this might not seem like a big deal to many of you, but this is my first full share of Berkshire Hathaway – I’m quite proud of it. I’m very much looking forward to add to the position gradually over time.

Regardless of the stock price, I plan to keep adding small amounts of money each month (Exceptions exist, of course. If the P/E ratio suddenly jumped to 30 or something, I’d probably sell and find a better use for the funds).

Another thing to note is, I don’t invest via auto withdrawals from my checking account. Every purchase is deliberate. Although the convenience factor is obvious, I am choosing to make purchases manually because I feel it a lot more when I do so. It helps me solidify mentally and emotionally that I am investing my hard earned cash in a profitable enterprise. I don’t know, maybe that sounds silly, but for me I get a little bit of satisfaction every time I get to hit the “buy now” button.

I feel like because I have been reading and studying so much about personal finance and investing in the two years, I feel a strong need to take action and start buying shares of great companies. Because my wife and I are totally focused on paying off our mortgage as quickly as possible, our cashflow is pretty much spoken for, down to the last dollar. Slowly building up the BHIP helps me get out my strong urge to invest without disrupting my family’s overall financial plan.

Some people get their kicks from buying motorcycles or going on spending sprees at the mall. For some reason I realize over the last year or so I am not really one of those people. Although I enjoy spending to a certain degree (I love travelling as well as other hobbies), I get a high degree of joy from saving and investing surplus cash.

Anyway, here are the current numbers for the BHIP. I’ve added a line to display my current ownership of shares, for the sake of remembering that even if the portfolio value drops in half tomorrow, there is a visual indicator of my level of ownership in the actual business, which is important to remember.

 

The stock price has been increasing a bit since I started buying.

The stock price has been increasing a bit since I started buying.

Introducing the Berkshire Hathaway Investing Plan

You know that old adage, “When is the best time to plant a tree?  Twenty years ago.  When is the second best time?  Today.”?  Well, I decided to start a fun little experiment to demonstrate how the average American can plant small seeds of future wealth by choosing a successful enterprise with a good track record and dollar cost averaging into it to build a position.  It requires almost no investment skill, and absolutely no discipline at all.  You just put a tiny amount of money into the plan every paycheck.

For my little experiment, I chose Berkshire Hathaway as the investment vehicle.  Why, you might ask?  Well, as you are probably already well aware, Berkshire Hathaway is the massive holding company run by legendary investors Warren Buffet and Charlie Munger.  They’ve grown it to over $484 billion in assets, and it is now the 9th largest company in the world.  Take a look at the returns Warren and Charlie have provided to shareholders over the past 48 years:

almost 20% returns over long periods of time...pretty sweet.

almost 20% returns over long periods of time…pretty sweet.

They have thoroughly beaten the S&P 500 over the long term, and provided high returns in an absolute sense as well.  Also, the diversification of the companies’ streams of income is akin to the earnings power of a large mutual fund (minus all those pesky operating fees that an investor pays).  There are profits rolling in from insurance premiums, diamonds, ice cream, jets, railroads, dividends from large equity positions and much more.  Berkshire has been criticized somewhat in recent years because its returns have lagged the market.  Well, in 2013 the market went up over 30%, and that’s kind of a hard target to beat….but let’s not get caught up in that.  Over long periods of time, as the data above shows, Berkshire has handily beaten most stock investments out there, and considerable beaten the market as a whole.

I opened an account at Loyal3 to being making the transactions.  Although the number of stock selections is pretty limited (around 50 or so companies right now), the cool thing is they are completely free, as of this writing.  This makes dollar-cost-averaging small amounts of money make sense from a cost perspective.  In order to make fees negligible at a traditional discount brokerage firm, you have to invest around $1,000 or so at a time in order to make the commissions worth it.

The Loyal3 interface is pretty intuitive.  It was easy to select the stock I wanted, specify the amount of the transaction and then confirm.  To start, I am contributing $10 every time I get paid (every two weeks) to this program.  In the future I may up the amount of the contributions.  I really want to experiment here and see how the position builds and grows over time.  I’ll post real updates of how the account is doing.  Here’s what I’ve got so far – let the compounding begin!

 

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