Berkshire Hathaway

What Is Berkshire Hathaway?

Berkshire Hathaway is a holding company for a multitude of businesses, including GEICO and Fruit of the Loom. It's run by chair and CEO Warren Buffett. Berkshire Hathaway is headquartered in Omaha, Nebraska. Originally, it was a company comprised of a group of textile milling plants.

Buffett assumed control of the struggling New England company in 1965. Since that time, Berkshire has grown to be one of the largest companies in the world, based on market capitalization.

Key Takeaways

  • Berkshire Hathaway is a massive holding company that's been run by famed value investor Warren Buffett since the 1960s.
  • Berkshire Hathaway has a market capitalization of close to $700 billion.
  • Its class A shares (BRK.A) are among the most expensive in the stock market.
  • It owns a variety of well-known private businesses and significant minority interests in public companies, such as Apple.
  • Greg Abel is the heir apparent to Berkshire CEO Warren Buffett who, in his nineties, has yet to announce any plans to step down. 
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How Warren Buffett Made Berkshire a Winner

Understanding Berkshire Hathaway

Warren Buffett became the controlling shareholder of Berkshire Hathaway in the mid-1960s and began a progressive strategy of diverting cash flows from the core business into other investments. As of May 2022, Berkshire Hathaway had a market capitalization of close to $700 billion, making it one of the largest publicly traded companies worldwide.

Berkshire Hathaway has a long history of operating success and smart investments. The company currently is the seventh-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 closed at $471,670 per share on May 17, 2022.

3,641,613%

The overall return of Berkshire Hathaway’s stock from 1965 to 2021. During this same period, the S&P 500 returned 30,209%.

Insurance subsidiaries represent a large part of Berkshire Hathaway's holdings. However, the company also manages hundreds of diverse businesses all over the world. These include Duracell, International Dairy Queen, 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 stocks in major public companies, such as Apple (AAPL), Bank of America (BAC), and United Parcel Service (UPS). As of the first quarter of 2022, Berkshire's public market equity portfolio was valued at more than $363 billion.

Early in his career, Buffett came across the novel idea to use the float from his insurance subsidiaries to invest elsewhere. He focused on selecting stock that would be held for the long term.

Buffett has long eschewed a diversified stock portfolio in favor of trusted investments that would be over-weighted in order to leverage the anticipated return. Over time, Buffett’s investing prowess became so renowned that Berkshire Hathaway's annual shareholder meetings are now a mecca for value investing proponents. They're also the target of intense media scrutiny.

Special Considerations

From 1965 to 2021, the compounded annual gain of Berkshire Hathaway’s stock was just shy of twice that of the S&P 500 index. Berkshire’s stock generated an annualized 20.1% over that period, while the S&P 500’s annualized gain was 10.5%.

Succession has always been a hot topic for Berkshire. The big question is whether Buffett’s replacement can continue the streak of outperforming the market. This becomes even more pressing when you consider that Buffett turned 91 years old in August of 2021.

In 2010, Buffett announced that he would be succeeded at Berkshire Hathaway by a team comprised of one CEO and two to four investment managers.

In 2011, it was announced that hedge fund managers Todd Combs and Ted Weschler would be two of those managers. In 2018, the company put Ajit Jain in charge of all of the insurance operations and made Greg Abel the manager of all other (noninsurance) operations. Both men seemed likely candidates for Buffett's heir apparent.

Buffet has not announced any retirement plans. Still, it's good that the question of succession has been answered, considering the advanced age of the Oracle of Omaha.

On May 1, 2021, vice chair of Berkshire Hathaway, Charlie Munger, unofficially announced that Warren Buffett would be succeeded as CEO by Greg Abel when Buffett eventually steps down. Abel's official title is CEO of Berkshire Hathaway Energy and vice chair in charge of noninsurance operations.

Who Is Warren Buffett?

Warren Buffett is a well-known business owner and investor. He's renowned not only for the jaw-dropping success of Berkshire Hathaway, the holding company of which he's been in charge since 1964. Buffett is also celebrated for his winning approach to investing, which has created great wealth for many shareholders. His frugal lifestyle, despite being one of the world's wealthiest individuals, and his easy-going manner have earned him fans across the globe.

What Is Value Investing?

Value investing refers to investing in a security with an intrinsic value that's greater than its market value. The idea is that the undervalued security's market value should increase to meet its intrinsic value. Warren Buffett is one example of an investor whose focus on value investing has led to incredible success.

What Is a Class A Share?

Class A shares of common stock usually give shareholders a greater amount of voting rights than Class B and other classes of stock. They're often held by a company's executives and some members of management so that those in charge of the company can retain control of it in various situations, such as a hostile takeover attempt.

Article Sources

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  1. Companiesmarketcap. "Market capitalization of Berkshire Hathaway (BRK-A)."

  2. NYSE. "Berkshire Hathaway Inc. BRK.A."

  3. Berkshire Hathaway. "2021 Annual Report."

  4. Berkshire Hathaway. "Links to Berkshire Subsidiary Companies."

  5. Fintel. "Berkshire Hathaway Inc - Warren Buffett - 13F Filing - 2020-12-31."

  6. U.S. Securities and Exchange Commission. "Form 13F Summary Page."

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