What Is Berkshire Hathaway?

Berkshire Hathaway is a holding company for a multitude of businesses. It's run by Chairman and CEO Warren Buffett. Berkshire Hathaway is headquartered in Omaha, Neb. Berkshire Hathaway was originally a company comprised of a group of textile milling plants.

Buffett became controlling shareholder of the company in the mid-1960s and began a progressive strategy of diverting cash flows from the core business into other investments. As of March 12, 2019, Berkshire Hathaway had a market capitalization of right at $500 billion, making it one of the largest publicly traded companies worldwide.

Understanding Berkshire Hathaway

Because of Berkshire Hathaway's long history of operating success and keen investments, the company has grown into the fifth largest public company in the world in terms of market capitalization. Berkshire’s stock trades on the New York Stock Exchange as two classes—A shares and B shares. Class A shares trade for $304,000 per share as of March 12, 2019.

Insurance subsidiaries tend to represent the largest pieces of Berkshire Hathaway, but the company also manages hundreds of diverse businesses all over the world, including Dairy Queen, Burlington Northern Santa Fe, Pampered Chef, Fruit of the Loom, NetJets and GEICO, among others. In addition to owning private companies, Berkshire also has a large investment portfolio of ownership in major public companies, such as Apple (AAPL), Bank of America (BAC), and Wells Fargo (WFC). Berkshire’s public market equity portfolio is valued at $183 billion.

Early in his career, Buffett came across the novel idea to use the "float" from his insurance subsidiaries to invest elsewhere—mainly into focused stock picks that would be held for the long term. Buffett has long eschewed a diversified stock portfolio in favor of a handful of trusted investments that would be overweighted in order to leverage the anticipated return. Over time, Buffet’s investing prowess became so noted that Berkshire's annual shareholder meetings are now a mecca for value investing proponents and the focus of intense media scrutiny.

[Important: Berkshire Hathaway is one of the largest public companies in the world, run by famed investor Warren Buffett].

Special Considerations

From 1965 to 2018, the annual performance of Berkshire Hathaway’s stock was more than double that of the S&P 500. Berkshire’s stock generated an annualized 20.5% over that period, while the S&P 500’s annualized gain has been 9.7%.

Succession has always been a hot topic for Berkshire, with the big question being: Can Buffett’s replacement continue the streak of market outperformance? The question becomes even more pressing when considering that Buffett is now 88 years old.

In 2010, Buffett announced that he would be succeeded at Berkshire Hathaway by a team—comprised of one CEO and 2-4 investment managers. In 2011, it was announced that hedge fund managers Todd Combs and Ted Weschler would be two of those managers. Buffet has yet to name his CEO replacement. Still, Buffett does appear to be grooming the company for success after his departure. In 2018, the company put Ajit Jain in charge of all of the insurance operations and made Greg Abel manager of all other operations. 

Key Takeaways:

  • Berkshire Hathaway is a massive holding company, still run by famed investor Warren Buffett. It owns a variety of well-known private businesses, such as GEICO, and also has minority interests in public companies, such as Apple.
  • The annualized return of Berkshire’s stock has been double that of the S&P 500 since Buffett tookover in the mid-1960s.
  • Berkshire CEO Warren Buffett, at 88 years old, has yet to name a successor. 

[Fast Fact: The overall return of Berkshire Hathaway’s stock from 1965 to 2018 has been 2,472,627%, while the S&P 500’s is just over 15,000% for the same period].