Berkshire Hathaway is the holding company where Warren Buffett, one of the world's richest men, makes his money and spreads his risk. The company invests in a variety of industries, from insurance and utilities to apparel and food, and from building materials and furniture retailers to jewelry shops. Its core insurance subsidiaries include
Berkshire Hathaway operates as a holding company with a highly decentralized structure without integrated business functions (such as sales, marketing, purchasing, legal, and human resources). Practicing a minimal day-to-day management leadership style, the firm owns a diverse group of companies from a variety of industries, with its core subsidiaries being insurance, reinsurance, freight rail transportation, utilities, and energy generation companies.
The insurance businesses constitute about three quarters of total revenue and are composed of over a dozen large providers that insure, for example, automobiles, boats, commercial buildings, businesses, workers’ compensation, and medical practices. Its most recognizable holding is GEICO (auto insurance). Sales and service revenues make up almost 70% of the insurance business revenue, while another 20% comes from insurance premiums.
Lesser known to most are the company’s investment in other industries. Berkshire Hathaway's holdings include a railroad transportation company (
More than 15% of Berkshire Hathaway revenue comes from its railroad, utilities, and energy subsidiaries and about 5% comes from its finance and financial product companies.
Additionally, the company invests its treasure trove of excess cash (typically more than $60 billion) in shares of public companies or in commercial debt, which it usually holds for a few years. Recent investments were in Wrigley, Kraft Heinz, Dow, and Phillips 66.
Omaha, Nebraska-headquartered Berkshire Hathaway operates primarily in the US, although it does provide insurance (and reinsurance) to clients in the Asia Pacific and Western Europe geographies.
Buffett's famed investment vehicle enjoyed upward trends in revenue and profit over recent years, highlighting the legendary investors' knack for choosing financially successful companies over the long term. It grew revenue from $107 billion in 2008 to more than $223 billion in 2016. Net income expanded almost fivefold, from $5 billion in 2008 to almost $25 billion in 2016.
In 2016 Berkshire's revenue climbed 6% to a record-setting $223 billion on increases in insurance and financial product revenue, which more than overcame a slip in revenue from its railroad, utilities, and energy businesses. Its insurance business, especially through higher demand for GEICO’s auto policies, grew 7% year over year. The firm's Finance and Financial Products business revenue shot up 36% with higher home sales volumes and a significant jump in the segment’s investment gains.
Net income was flat in 2016 versus the prior year. A jump in insurance losses & adjustments, coupled with higher costs for sales and services ate into the higher revenue, leaving the firm with a still highly profitable $24 billion.
Cash on hand at the end of 2016 was $28 billion, a decrease of $39 billion from 2015. While operating activities provided $32 billion and financing activities offered an additional $13 billion of cash, investing activities (primarily the purchase of US Treasury Bills) used more than $84 billion.
Berkshire Hathaway seeks out large companies with consistent earnings, easy-to-understand business models, and like-minded leadership. Most acquisitions are made with cash and most firms retain their management after the transaction. Buffett and longtime business partner Charlie Munger attempt to run Berkshire like a small business, albeit on a much larger scale. It operates as a collection of individual enterprises; Buffett and Munger largely keep their hands off portfolio companies' day-to-day operations, but allocate capital and control risk.
In a letter to shareholders, Buffett once declared "Our elephant gun has been reloaded, and my trigger finger is itchy." Hunting big game (i.e. acquiring big companies) has become somewhat of a necessity for Berkshire Hathaway to continue its growth trajectory, but the company benefits from not being married to any industry as it seeks out its quarry. Following its “big game” investment strategy, Berkshire entered new markets with the 2017 purchase of 38% of Pilot Flying J truck stop company and the $32 billion 2016 acquisition of aerospace components giant
Chairman and CEO Warren Buffett, along with associates, slowly accumulated a majority of shares in the Berkshire Hathaway textile company in the early 1960s. To stabilize revenues and reduce financial risks, Buffett diversified the company with a purchase of Indemnity and National Fire & Marine Insurance Company in 1967. Thus began the long, prosperous road towards profitability and dozens of acquisitions. Buffett still owns about 20% of Berkshire Hathaway's shares.
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