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What Exactly is Berkshire Hathaway?

Berkshire Hathaway logoThe 2015 Berkshire Hathaway Annual Shareholder weekend kicks off on Friday.

This weekend – celebrating 50 years of a profitable partnership – will be the biggest ever, and I’ll be live tweeting all of the non-stop action.

If you haven’t done so already, follow me on Twitter right now!

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If you’ve never heard of Berkshire Hathaway – or just don’t know much about the company – check out the post below, which first appeared on WSJ’s Moneybeat:

What Is Berkshire Hathaway?

Warren Buffett

Berkshire Hathaway Inc. used to be a failing textile firm. Now it’s one of the largest companies in the world.

At the helm is Warren Buffett, Berkshire’s chairman, chief executive, and largest shareholder. At his right hand: Charlie Munger, Berkshire’s vice chairman. Mr. Buffett has led the company for five decades, overseeing its transformation into a wildly successful conglomerate with a reach that extends to all corners of the globe. 

At one time, Berkshire made linings for men’s suits. Now, its various 100%-owned subsidiaries make cowboy bootsfloor enamel  and Ginsu knives; sell ear-piercing tools, diamond rings and encyclopedias; rent topiaries, candelabras andrefrigerated trailers; provide insulated bags for pizza-delivery men, uniforms for police officers and shoulder pads for football players… and much, much, much more.

If Berkshire’s wholly-owned companies were independent, nine of them would be among the Fortune 500.

Some Berkshire companies are household names. They include Dairy Queen, Fruit of the Loom, Benjamin Moore & Co., See’s Candies, and half of ketchup-maker H.J. Heinz Co. (for now). Soon, Duracell batteries will also be under the Berkshire umbrella.

In Berkshire’s $115 billion stock portfolio are major stakes in some other widely known names. Berkshire owns 15% ofAmerican Express Co., 9% of Coca-Cola Co., 9% of Wells Fargo & Co. and nearly 8% of International Business Machines Corp. Other major holdings include Goldman Sachs Group Inc.,Bank of America Corp. and Wal-Mart Stores Inc. Heinz is planning to merge with Kraft Foods Inc., and if the deal goes through, Berkshire will own more than one-quarter of the stock in a combined food-and-condiment powerhouse called Kraft Heinz.

Planes, trains and automobiles? Berkshire’s got them. Its railroad, Burlington Northern Santa Fe, is one of the largest in the country, raking in $23 billion in revenue last year by operating on a track network of 32,500 miles in 28 states and three Canadian provinces. Separately, Berkshire owns a trucking company that delivers groceries to convenience stores and a plane fleet for high-flying executives. Mr. Buffett just bought a massive auto dealership chain, and has designs on snapping up even more car dealers in the years ahead. Berkshire even has a towing unit for broken-down boats.

If Berkshire’s wholly-owned companies were independent, nine of them would be among the Fortune 500.
Berkshire’s energy unit operates power plants, natural gas lines, wind farms, solar projects and hydroelectric dams. Its reach stretches across large swaths of the U.S. and into Canada. It also has a presence in northern England and on the Philippine island of Luzon. More than 11 million people get their power from Berkshire companies, and the energy operations collectively raked in more than $17 billion in revenue last year.

Think that’s a lot? We’re just getting started. Berkshire’s insurance operations are bigger than the railroad and the power companies combined. Collectively, Berkshire’s insurance units brought in premium revenue of $41 billion in 2014.

Berkshire owns Geico Corp., the second-largest car insurer in the U.S., which has become ubiquitous by spending far more than any other insurance company in the U.S.–about $1 billion in some years–to bring its gecko, its camel, its celebrities and its cavemen to Americans’ attention. The cavemen even had a sitcom–briefly.

In contrast, many of the other Berkshire insurance unit operate well out of the spotlight. Berkshire quietly takes on massive and unusual risks, including the sale of hurricane insurance, terrorism policies and earthquake coverage. Mr. Buffett’s company has insured Chicago’s Sears Tower, now called Willis Tower, backed a $1 billion March Madness bracket contest, and twice insured PepsiCo Inc. against the unlikely event that a monkey would pick a series of numbers correctly on national television. (It didn’t.) Berkshire provided disability coverage for infielder Alex Rodriguez when his contract was the largest in baseball and a life-insurance contract on boxer Mike Tyson when he was heavyweight champion.

Some small insurers in the Berkshire stable, operating with names like Cypress Insurance Co., Redwood Fire and Casualty Insurance Co., or Continental Divide Insurance Co., insure ambulance drivers and tow-truck fleets, churches and sororities, hole-in-one contests and paper airplane tosses.

Meanwhile, its reinsurance operation, one of the largest in the world, protects insurance companies when their losses get too large, as it did when it shouldered the asbestos-related obligations of insurers including American International Group Inc., Liberty Mutual Holding Co. and Lloyd’s of London. Those three deals were some of the largest insurance contracts in history, topped by the $7.1 billion in cash and securities Berkshire got for the Lloyd’s deal.

Why would Berkshire take on such risks? Because they create funds for Mr. Buffett–one of the most successful investors in history–to put to work. In fact, the insurance operations have been a main driver of Berkshire’s success for much of its history. That’s because insurers collect money from customers now, but pay their claims later. In extreme cases, they may pay them decades in the future. In the meantime, Mr. Buffett can invest the money and Berkshire can keep any profit he makes. Over the decades, Mr. Buffett has made the most of that opportunity.

Mr. Buffett calls those investable funds “float,” and Berkshire’s float has grown from $39 million in 1970 to nearly $84 billion by the end of 2014.

The biggest superlative of all: Berkshire’s stock performance. Shares in the Berkshire Hathaway textile mill could be had for around $7.50 when Mr. Buffett first started buying the stock for himself and his partners. It closed at $214,400 Wednesday.
For many years, Mr. Buffett invested the money that Berkshire generated primarily in stocks, but over the decades, he’s shifted more to buying entire companies and adding them to the Berkshire stable. Berkshire lists more than 80 businesses in its latest annual report, but that list, however lengthy, is misleading.  The conglomerate completed 31 “bolt-on” deals last year alone. Such deals fold newly acquired companies into existing Berkshire businesses. And one Berkshire company, Marmon, was a conglomerate in its own right before Berkshire acquired it in 2008. Marmon alone consists of more than 180 manufacturing and servicing businesses that operate within 13 different business sectors. It produced revenue of about $8 billion last year.

Berkshire owns Shaw Industries, the leading carpetmaker, and CORT, the largest furniture-renter in the U.S. It sells children’s clothes through its Garanimals unit, running shoes through Brooks Sports, and lingerie through Vanity Fair. It owns three different jewelry retail operations–Borsheims, Helzberg Diamond Shops and Ben Bridge Jeweler–and four separate home-furnishings brands—Nebraska Furniture Mart, R.C. Willey, Star Furniture and Jordan’s. It owns The Buffalo News, The Omaha World-Herald and about 28 other daily newspapers. The list of real-estate brokerages that are part of Berkshire took up an entire page in the last annual report, and more are added every month.

Mr. Buffett’s companies send people to peddle vacuum cleaners and avocado peelers in homes, and dispatch others to offer egg collectors and pig-breeding crates on farms. Berkshire businesses train contractors to build buildings and Army pilots to fly helicopters. They supply roof tiles and the nailguns to affix them, trailers and the software to track them, and abstract paintings and the frames to hold them.

The company sells ice-makers in France and ice cream in Indonesia; cranes in Canada and chemical storage in Russia; machine parts in Israel and steel tables in South Africa.

But Berkshire is primarily a U.S.-focused company, with roots in American businesses that go back over a century. The two companies that supplied their names to Mr. Buffett’s company–Berkshire Fine Spinning Associates and Hathaway Manufacturing–both have roots in the 19th Century. So does Fruit of the Loom. The founder of Berkshire-owned Justin Boots got going in 1879. Paint company Benjamin Moore traces its origins to 1883. The story of  Berkshire’s Acme Brick starts in 1884. The firm’s recently acquired Nevada energy unit started powering Las Vegas in 1906.

Need more superlatives? Acme, the brick-maker, was listed in the Guinness Book of World Records as making the biggest brick in history, a nine-foot-long monster dubbed “Baby Clay.” Berkshire units have tested the durability of their products with live rattlesnakes, built an Imax theater in a furniture store, and played host to the  Vacuum Cleaner Collectors Club. Not many companies can say that.

The biggest superlative of all: Berkshire’s stock performance. Shares in the Berkshire Hathaway textile mill could be had for around $7.50 when Mr. Buffett first started buying the stock for himself and his partners. It closed at $214,400 Wednesday. That’s an increase of 2,858,567%

Oh, and that textile mill? Mr. Buffett considers it one of his worst investments ever. He shut it down in 1985.


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  • Pingback: Warren Buffett's Net Worth over the Years | Vintage Value Investing()

  • Benjamin Graham – also known as The Dean of Wall Street and The Father of Value Investing – was a scholar and financial analyst who mentored legendary investors such as Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss.

    Buffett describes Graham’s book – The Intelligent Investor – as “by far the best book about investing ever written” (in its preface).

    Graham’s first recommended strategy – for casual investors – was to invest in Index stocks.
    For more serious investors, Graham recommended three different categories of stocks – Defensive, Enterprising and NCAV – and 17 qualitative and quantitative rules for identifying them.
    For advanced investors, Graham described various “special situations”.

    The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund.
    The last requires more than the average level of ability and experience. Such stocks are also not amenable to impartial algorithmic analysis, and require a case-specific approach.

    But Defensive, Enterprising and NCAV stocks can be reliably detected by today’s data-mining software, and offer a great avenue for accurate automated analysis and profitable investment.

    Warren Buffett once wrote a detailed article explaining how Graham’s record of creating exceptional investors (such as Buffett himself) is unquestionable, and how Graham’s principles are everlasting. The article is called “The Superinvestors of Graham-and-Doddsville”.

    Thank you.