Berkshire Hathaway, Inc. (BRK.A, BRK.B) is a holding company run by billionaire Warren Buffett. It is headquartered in Omaha, Neb., Buffett's birthplace. From 1965 (the year Buffett took it over) to 2017, the company has averaged an annual growth in book value per share of 19.1%, compared to 9.9% from the S&P 500 over the same period. Obviously, Berkshire Hathaway has been extremely profitable for its owners and stakeholders. And these four companies have been among the most valuable in its portfolio.
1. See's Candies
In 1972, See's Candies generated sales of $30 million with pre-tax profits of $5 million, and it did it all with only $8 million in assets. That year, Buffett acquired the company for $25 million – in effect, paying a $17 million premium for the candy maker, given its worth. The acquisition marked the first time Warren Buffett purchased a business based on long-term profitability and not current net worth.
From 1972 to 2015, See's Candies produced a collective $1.9 billion in pretax profits, which is 76 times the initial purchase price. In that time, Berkshire Hathaway has invested only $40 million to grow the firm. As of year-end 2017, that profit had grown to just over $2 billion. Basically, See's Candies has yielded Berkshire Hathaway at least $2 for every $1 invested.
Warren Buffett sees insurance companies as great investments. In 1951, at the age of 21, he had 75% of his net worth invested in a majority stake in GEICO. That same year, GEICO traded at only eight times its earnings even though the company grew written premiums by 400% from 1945 to 1950.
GEICO made Berkshire Hathaway very successful from 1951 to 1994, and in 1995, Buffett acquired the remaining portion of the company. What makes GEICO such a high performer for Berkshire Hathaway is the company's operating performance; it always posts massive profits on insurance policies, spending less on claims and other costs than it makes on premiums. This generates a float that Buffett can use for investing. GEICO is continuing to grow; in 1996, it was the seventh biggest auto insurance company in the U.S. and as of 2018, it is the second largest auto insurance company.
3. Berkshire Reinsurance
Overseen by Ajit Jain, the holding company's vice chairman for insurance operations, Berkshire Hathaway Reinsurance Group is one of Buffett's most profitable lines of business. According to Buffett, Jain – who joined Berkshire Hathaway in 1985 – has made more money for the company than Buffett himself. Berkshire Reinsurance gives Berkshire Hathaway a float of $37 billion.
While most insurance companies, such as GEICO, make their float with low pricing and by forgoing underwriting profits, Berkshire Reinsurance does it differently: It manages to create float while also increasing its underwriting profits. As of 2017, Berkshire Reinsurance has generated roughly $5 billion in profits for Berkshire Hathaway while generating an additional $22 billion in no-cost float, which Buffett can then invest in other ventures.
4. Burlington Northern Santa Fe
Burlington Northern Santa Fe (BNSF) is not as large a cash cow as See's Candies or GEICO, but it is a billion-dollar, bottom-line driver for Berkshire Hathaway. With consolidated revenues of $21.4 billion in 2017, the company is one of the largest freight railroad networks in North America with 48,000 employees, 32,500 miles of track in 28 states and over 8,000 trains. The railroad hauls enough coal per year to generate 10% of the electricity produced in the U.S.
Additionally, the company acts as a sponge for the float Berkshire Hathaway generates from its insurance subsidiaries. Buffett uses BNSF as a place to store this money, especially when returns on alternative insurance are low. Essentially, Buffett can invest his additional capital in BNSF while he looks to deploy it elsewhere and generate a higher return than even the highest-rated bonds.