Berkshire Hathaway (BRK.A, BRK.B) is one of the world's largest and most diverse conglomerates. The company owns multiple businesses in the financial services, consumer goods, oil and gas, agriculture and transportation sectors that together employ approximately 390,000 people. This is in addition to substantial holdings of Apple (AAPL), American Express (AXP) and Coca-Cola.
Berkshire Hathaway was a failing textile manufacturer in December 1962 when Warren Buffett began aggressively buying Berkshire shares. He took over the company in 1965. Buffett bought his first insurance company in 1967, using the cash premiums to make future investments. Nevertheless, Buffett held onto the original textile business for another 20 years.
Between 1964 and 2019, Berkshire shares returned a 20.3% compounded annual gain, handily beating the 9.9% earned by S&P 500 over the same period of time.
Here are some of Berkshire Hathaway's most well-known companies.
Warren Buffett: InvestoTrivia Part 1
Leo and Lillian Goodwin founded GEICO in 1936 as the Government Employees Insurance Company. The idea was to target federal government employees and enlisted military officers, believing these customers were a better insurance risk. GEICO first came to Buffett's attention in 1951 via Benjamin Graham, his mentor and professor at Columbia University. Buffett traveled to GEICO headquarters to learn more about the company and met Lorimer Davidson, who would later become its CEO. Buffett bought his initial stake following the meeting with Davidson. He made a second purchase of GEICO stock in 1976, buying 1 million shares. In 1996, Berkshire Hathaway took control of the company.
GEICO has written more than 17 million auto insurances policies covering more than 28 million vehicles. Unlike many insurance providers, GEICO sells policies directly to consumers via the internet or telephone. This eliminates commission expenses paid to insurance agents.
Dairy Queen, a popular fast food chain, is another subsidiary of Berkshire Hathaway. The franchise was acquired in 1997 for $585 million in both cash and Berkshire common stock. The company has more than 7,000 franchised restaurants.
Benjamin Moore Paints
Benjamin Moore & Co. is an American premium paint manufacturer founded in 1883 with just $2,000 in capital by Benjamin and Robert Moore, two brothers from Brooklyn. Berkshire Hathaway acquired the company for $1 billion in November 2000.
The company that would later become NetJets was founded in 1964 by a group of retired U.S. Air Force generals. Brigadier General Dick Lassiter led the company, which was called Executive Jet Airways. Serving on the board were Curtis LeMay, a four-star general and former head of Strategic Air Command, and General Paul Tibbets, pilot of the Enola Gay, which dropped the atomic bomb on Hiroshima. Also serving on the board was actor Jimmy Stewart. Richard Santulli acquired the company in 1984 and launched the fractional ownership model in 1986. Berkshire Hathaway bought the business in 1988 and changed the company's name to NetJets in 2002.
NetJets manages more than 220 private aircraft. In 2019, it logged more than 41,500 flights for 86,125 passengers. NetJets flights visited 1,456 airports in 120 countries around the world.
The company that created the Duracell battery started in the 1920s, though it wasn't until 1965 that the Duracell brand was introduced amid growth in consumer electronics such as tape recorders, cameras and portable radios. Gillette paid $7 billion to acquire Duracell in 1996. Procter & Gamble (PG) later acquired Gillette and agreed to sell the battery business to Berkshire Hathaway for $4.7 billion in 2014. The transaction was financed by what is known as a split-off. Instead of paying with cash, Berkshire exchanged its equity stake in P&G for the Duracell business. This allowed Berkshire to avoid paying capital gains on its P&G shares, which had a cost basis of $336 million.
Fruit of the Loom
Fruit of the Loom is one of the oldest clothing brands in the United States. Brothers Benjamin and Robert Knight founded the company in 1851 after buying a textile mill in Warwick, Rhode Island. The company made a series of missteps in the 1990s. A $900 million acquisition spree left the company overextended and unable to pay suppliers. To cut costs, it laid off 16,000 workers in the U.S. and moved production overseas, only to encounter quality and delivery problems. In 1999, Fruit of the Loom posted a loss of $576 million, which was seven times larger than the market had been expecting. Fruit of the Loom sank to $1 per share, down from $44 just three years earlier. It filed for Chapter 11 bankruptcy protection in December 1999. Despite the company's troubles, Buffett found strength in the company's brand and was encouraged by the return of experienced executive John Holland. In 2001, he agreed to buy the company for $835 million in cash.
The Bottom Line
Berkshire Hathaway is an investment powerhouse more than 50 years in the making. Under Buffett's management, Berkshire has enriched many shareholders. The company ranks No. 6 on Fortune 500 list.