Investors have a plethora of reasons to invest directly in Berkshire Hathaway (NYSE: BRK.A, BRK.B). The No.1 reason, of course, is Warren Buffett's unrivaled investing acumen. Problem is, ponying up $109,000 for a class A share or even $3,600 for a class B share can be both prohibitive and daunting.

Fortunately, a worthwhile alternative exists - Leucadia National (NYSE: LUK), a company complimented in some circles as a petite version of Berkshire.

The Same But Different
Leucadia, like Berkshire, more closely resembles an investment company than an operating one. Its diversified holdings are engaged in a variety of businesses, including manufacturing, real estate, gambling, winery, timber, medical devises and banking.

The similarity even extends to cyberspace, where Leucadia's website ( mimics Berkshire's ( It's austere - plain black and white text - homepage allows easy access to sundry financial reports and very "Buffett-esque" annual shareholders' letters, which are filled with self-deprecation, humor and homilies.

The resemblance becomes more uncanny when the Berkshire of yesterday is compared with the Leucadia of today.

Back in the late 1970s and early 1980s, when Buffett was posting 45% average annual returns, Berkshire owned only a handful of companies and a small coterie of publicly traded stocks. Leucadia's equity portfolio of today comprises a mere eight issues: Eastman Chemical Co. (NYSE: EMN) being the largest, followed by International Assets Holdings (Nasdaq: IAAC) and the recently added Winn-Dixie Stores (Nasdaq: WINN).

Such concentration has enabled Leucadia exectuives Ian Cumming and Joseph Steinberg to post an average annual return of 20.8% over the past 29 years, slightly lower than Berkshire's 21.4%.

But since 1990, Leucadia has outperformed Berkshire, with the outperformance growing more pronounced as the time frames become more contemporary. For the past 10 years, Berkshire stock has appreciated at an average annual rate of 10.6% while Leucadia's has appreciated at a 12.7% average annual rate. Over the past five years, Leucadia's stock has appreciated at a 20.4% rate versus Berkshire's 9.5% average annual rate.

A Great Investor, But...
Buffett is inarguably the greatest living investor, but Berkshire tips the beams with a belt-busting $42 billion cash account, a $165 billion market cap, and a $66,000 per-share book value. As of December 31, 2006, Berkshire claimed ownership in 41 publicly traded companies, complemented by complete or supermajority ownership in 46 more. That's a lot of girth.

In comparison, Leucadia weighs in with $1.9 billion in cash, a $7.2 billion market cap, and a book value of $18 a share. It's smaller size means it's naturally more nimble, allowing it to access small-cap value stocks - which are proven to offer superior risk-adjusted returns over time. Such investments now fly under Berkshire's radar. To noticeably impact its bottom line, Berkshire is forced to buy in $5 billion- to $20-billion chunks.

Stock price is another Leucadia advantage. I like the fact management keeps the stock affordable with stock splits, so less capitalized investors can buy in round lots. (I also like the 25-cent annual dividend.)

I realize many investors applaud Berkshire for its stand against stock splits; I'm not one of them. To aggregate accurate value you need diversity of opinion, independence and decentralization. Berkshire's high stock price prevents wide diversity of opinion (many small investors are unable to directly invest, or even short) and many of the owners are institutions and long-time wealthy shareholders (who tend to congregate at the same conferences and seminars, which often reaffirm prevailing opinion).

Buffett is brilliant, to be sure, as his track record aptly proves, but investing is about the future, and Leucadia's future could arguably be more promising than Berkshire's.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Stock Analysis

    What Exactly Does Warren Buffett Own?

    Learn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
  4. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  5. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  6. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  7. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  8. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  9. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  10. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center