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There was a time, way back in the 1960s, when conglomerates were all the rage. They've fallen out of favour since then. But that didn't stop a small firm based in Omaha, Neb., from blossoming into one of the biggest conglomerates in the world.

The man responsible for transforming Berkshire Hathaway Inc. from an ailing textile concern into a colossus is none other than famed investor Warren Buffett.

He started buying the company's stock in the mid-1960s for less than $20 (U.S.) per share. It now trades near $186,000 a share and controls a sprawling collection of businesses. It's a remarkable growth record that solidifies Mr. Buffett's reputation as one of the best investors in the world.

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I've been pleased to own a few of the company's B shares (which trade around $122) and they're in my model value portfolio. But I'm starting to have second thoughts about the stock. My biggest worry is related to the firm's size. Berkshire Hathaway is the fifth-largest stock in the U.S. by market capitalization and the fourth-largest by revenue, according to S&P Capital IQ. Problem is, it is extraordinarily difficult for giant companies to grow at above average rates for a long time.

The issue has been on Mr. Buffett's mind for years. He has repeatedly warned that the firm's growth rate will slow as it gets larger and the slowdown should negatively affect investor returns.

On the upside, the stock could benefit from some multiple expansion. Berkshire Hathaway traded for more than 1.75 times book value before the crash of 2008 and it could get there again. If it does, its shares would gain about 25 per cent, not counting further book-value growth.

But long-term returns will rest mainly on the company's ability to increase its book value. That's not great news because, as Mr. Buffett has warned, it's starting to slow down. Over the past decade, the firm increased its book value per share by an average of 10 per cent annually. A growth rate in the high single-digits seems more likely in the future.

Combine some multiple expansion with modest book-value growth and investors probably won't see the sort of returns they've come to expect from the company.

Mr. Buffett's age – he is 83 – is also a big concern. While he has yet to officially announce a successor, his job will probably be split up and given to several different people. No matter how the succession plays out, Berkshire Hathaway will suffer in his absence.

After his departure, the company runs the risk of trading at a discount to the value of its parts, which would put its future at risk. But there's a plan in place to avoid such a calamity. The company intends to aggressively buy back its stock when it trades for less than 1.2 times book value. Mr. Buffett figures Berkshire Hathaway is a bargain at that price.

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But that's not to say the stock will never trade at a lower price. After all, the market has a tendency to go to extremes. However, such dips should be temporary, provided the company has spare cash and remains free-cash-flow positive.

These days, Berkshire Hathaway trades near 1.4 times book value, which means Mr. Buffett isn't snapping up its shares. On the other hand, its downside seems fairly limited. Downside protection plus the prospect for some growth makes it attractive to conservative investors.

But enterprising investors should look for better bargains elsewhere. Instead of investing in the giants of today, they'd be wise to search for the Berkshire Hathaways of tomorrow.

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