Billionaire Bill Gates’ confidence charged on Warren Buffett’s favorite stocks in Q2. Should you buy it too?

Bill Gates and Warren Buffett have a lot in common despite their age difference. Both are multi-billionaires. They are philanthropists. They both like to play bridge. And they are both investors.

The two wealthy men now have even more in common on the investment front. The Bill & Melinda Gates Foundation Trust loaded up on Buffett’s preferred stock in the second quarter of 2024. Should You Buy This Stock?

Buffett’s favorite stock looks like Gates’ favorite these days

There isn’t much mystery about the identity of Buffett’s favorite stock. He holds 15.1% of the aggregate economic participation in Berkshire Hathaway (BRK.A 0.89%) (BRK.B 0.93%) Class A and Class C shares. That stake is worth about $146 billion right now.

Also, Berkshire Hathaway seems to be Gates’ favorite stock these days. In Q2, his trust bought another 7.32 million shares of the conglomerate, increasing its stake by 42%.

Sure, Microsoftthe company co-founded by Gates, remains the largest holding in the Bill & Melinda Gates Foundation Trust portfolio. However, the trust sold more than 1.6 million shares of the tech giant in Q2.

Gates’ trust did not buy any stocks other than Berkshire Hathaway in the second quarter. His only trade was exiting a position in the online used car seller Carvan.

Why did Gates’ trust load on Berkshire Hathaway shares?

Neither Gates nor anyone else associated with the charitable trust he and his ex-wife founded have commented on the large purchase of Berkshire Hathaway stock in the second quarter. However, we can make some pretty good guesses as to why the trust chose to load the stock.

I suspect a key reason behind the increased stake is the diversification that Berkshire Hathaway offers. The conglomerate operates more than 60 businesses spanning a wide range of industries. It holds positions in more than 40 other publicly traded companies, with very little overlap with the other stocks in the Bill & Melinda Gates Foundation Trust portfolio.

Another likely factor for the massive purchase is the long-term performance of Berkshire Hathaway’s stock. Gates’ trust first initiated a position in Berkshire in the second quarter of 2010. Since then, Berkshire’s stock price has skyrocketed more than 460%.

Between 1965 (the year Buffett took control of Berkshire Hathaway) and 2023, the holding company delivered a compound annual return of 19.8%. By comparison, the S&P 500Its compound annual gain during the period was a much lower 10.2%. Berkshire is also handily outperforming the S&P 500 so far in 2024.

Should You Also Buy Berkshire Hathaway Stock?

It’s not a good idea to blindly base your investment decisions on what billionaires or their charitable trusts are doing. However, in this case, I think many investors could follow in the footsteps of Buffett and Gates.

Of course, Berkshire Hathaway is not a good choice for every investor. If you’re looking for an income, you’re out of luck. Berkshire has never paid a dividend in its history. Also, even though Buffett is a famous investor, his favorite stocks are not particularly cheap. While Berkshire’s forward earnings multiple of 19.3 is less expensive than the S&P 500, it’s not low enough to appeal to most value investors.

But the diversification and long-term performance offered by Berkshire Hathaway are hard to beat for long-term growth investors. Berkshire has also built up a massive cash hoard of about $277 billion, which could allow Buffett and his team to aggressively buy solid stocks at a discount when the next major market selloff occurs .

Buffett’s and (probably) Gate’s favorite stock doesn’t have to be your favorite stock. However, I suspect that Berkshire Hathaway will continue its winning ways for a long time to come.