What is Berkshire Hathaway?

Published by Thomas Herold in Investments

'Berkshire Hathaway' is explained in detail and with examples in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Berkshire Hathaway represents the multinational American holding company that has been ranked among the largest five publically traded companies in the world by Forbes magazine. The conglomerate investment company has been controlled by Warren Buffet since the mid 1960s. Its headquarters are found in Omaha, Nebraska.

Originally Berkshire Hathaway was involved with manufacturing textiles and cotton manufacturing. Its roots go back to the early 1800s. This business began to fail in the 1950’s and 1960’s. Plants were closed and people laid off over the years. Warren Buffet took control of the company gradually by buying shares over time. When the owner offered to buy back Buffet’s shares but then slighted him on the final price offer, Buffet took action.

In 1964 he bought out the then President Stanton and installed his own president. Buffet then concentrated on the financial structure and affairs of the company. By 1967 he began buying his first insurance companies, a tradition he continues to this day. The first insurance ventures he purchased were National Fire and Marine Insurance and National Indemnity. GEICO has been the largest one he acquired.

Today Berkshire is an enormous holding company that has been ranked as high as the number five largest publically traded company in the world by Forbes in its Forbes Global 2000. Buffet has acquired full interest in companies including GEICO, Lubrizol, BNSF, Fruit of the Loom, Dairy Queen, Helzberg Diamonds, NetJets, and Flight Safety International.

Berkshire also counts a 26% ownership holding of the Kraft Heinz Company. The firm owns an unknown percentage of Mars, Inc. Important minority share holdings of the company include the Coca-Cola Company, American Express, Apple, IBM, Wells Fargo, and Restaurant Brands International.

No one can argue with the success of Berkshire Hathaway under Warren Buffet’s leadership. He holds posts of Chief Investment Officer, Chairman of the Board, and Chief Executive Officer. Under his leadership the company book value has grown by 19.7% annually on average during the past 49 years at a time when the S&P 500 including dividends has averaged 9.8%. Berkshire has deployed enormous amounts of capital and used little debt during this tenure. Charlie Munger is the other major figure at the company. He serves as Vice Chairman on the Board of Directors.

Warren Buffet has changed his method of investing since his early days with Berkshire. In the first years he concentrated his efforts into making long term investments in companies that were publicly traded. Over the last few decades he has instead bought out entire companies. Thanks to this more recent strategy, Berkshire now counts a wide range of many different types of businesses among its stable. This includes retail, insurance, jewelry sales, candy, home furnishings, railroads, vacuum cleaner makers, encyclopedias, uniform manufacturing and selling, newspaper publishing, and gas and electric utilities in the U.S. and U.K.

The future of Berkshire Hathaway has been a concern to many of its share holders as Warren Buffet continued to control the company so tightly and directly and began to get older. Buffet set out a succession plan that breaks up the three jobs he holds of CEO, Chief Investment Officer, and Chairman of the Board. For CEO, he wants one of the 50 CEO’s of their subsidiaries selected to succeed. This would be someone who is within the organization and who has proven himself or herself successfully.

For investment handling, Buffet has hired several people over the last decade who are doing well in this capacity with a small percentage of the investment book. For Chairman of the Board, Buffet wants a family member like his oldest son Howard. Howard has given interviews where he agreed that Berkshire Hathaway has been his father’s life work and that maintaining this legacy is critical to him.

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The term 'Berkshire Hathaway' is included in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.