Berkshire Hathaway

Berkshire Hathaway Inc. is a massive American multinational conglomerate holding company headquartered in Omaha, Nebraska. While technically a public company, it is far more famous as the investment vehicle of its legendary chairman and CEO, Warren Buffett, and his long-time partner, Charlie Munger. For decades, Berkshire has served as a living, breathing masterclass in the principles of value investing. It began its life as a struggling textile manufacturing company, but after Buffett took control in 1965, he gradually wound down the failing textile operations and used the company as a base to acquire other businesses. Today, its portfolio spans a vast array of industries, from insurance and railroads to utilities and consumer goods. For investors, studying Berkshire Hathaway isn't just about analyzing a stock; it's about understanding a philosophy that has created staggering wealth over more than half a century.

What makes Berkshire Hathaway so unique is its decentralized structure and its powerful economic engine. It isn't a single, integrated company but rather a collection of dozens of independently managed subsidiaries. This allows Buffett and his team at headquarters to focus on their primary job: capital allocation.

The story of Berkshire Hathaway is one of the greatest turnaround tales in business history. When Warren Buffett started buying its stock, the company was part of a dying American industry. However, he saw that its stock was trading for less than its working capital, a classic “cigar-butt” investment opportunity championed by his mentor, Benjamin Graham. After taking control, Buffett used the cash flow from the textile business to buy stellar companies, starting with National Indemnity Company, an insurer. This move into insurance was the pivotal moment that set the stage for Berkshire's explosive growth, as seen with iconic acquisitions like See's Candies, which became a template for buying wonderful businesses at fair prices.

The secret sauce behind Berkshire's success is a concept called float. Berkshire's extensive insurance operations (including giants like GEICO) collect premiums from customers upfront but only pay out claims later—sometimes much later. This pool of money, which doesn't belong to Berkshire but which it gets to hold and invest for its own benefit, is the float. For most insurers, the cost of this float is the underwriting loss they might suffer. However, Berkshire's insurance businesses are so well-run that they often produce an underwriting profit. This means they are effectively being paid to hold billions of dollars of other people's money, which Buffett can then deploy to buy more great businesses. It’s an incredibly powerful, self-reinforcing engine for compounding wealth.

Berkshire Hathaway is the embodiment of the value investing philosophy. Its success is a direct result of the disciplined application of a few core tenets, which investors can learn from and apply to their own strategies.

Buffett and Munger's approach is deceptively simple and is guided by a clear set of principles:

• Think Like an Owner: They don't buy “stocks”; they buy businesses. Their analysis focuses on the long-term economic prospects of a company, not on short-term market fluctuations.
• Stay in Your Circle of Competence: They only invest in businesses they can understand. This simple rule helps them avoid costly mistakes in complex or fashionable industries where they have no expertise.
• Demand an Economic Moat: They look for companies with a durable competitive advantage—a “moat”—that protects them from competitors. This could be a strong brand (like Coca-Cola), a low-cost structure (like GEICO), or a network effect.
• Insist on a Margin of Safety: This is the cornerstone of value investing. They aim to buy a business for significantly less than its calculated intrinsic value. This provides both a cushion against errors and the potential for superior returns.
• Be Patient: As Buffett famously said, “Our favorite holding period is forever.” They are not traders; they are long-term partners in the businesses they own.

One of the greatest free resources in all of finance is Berkshire Hathaway's collection of shareholder letters. Written by Buffett himself, these annual essays are celebrated for their clarity, wit, and profound wisdom on investing, management, and business ethics. They avoid jargon and offer timeless lessons, making them required reading for any serious investor. Attending the Berkshire Hathaway Annual Shareholder Meeting, often called “Woodstock for Capitalists,” is also a pilgrimage for thousands of investors seeking to hear directly from Buffett and Munger.

Studying Berkshire is about more than just admiring its track record; it's about internalizing its mindset.

The single most important lesson from Berkshire Hathaway is to shift your perspective. Stop thinking of yourself as someone who plays the stock market and start thinking of yourself as a business analyst looking to become a part-owner in a great enterprise. Before you buy a single share, ask yourself: “Would I be comfortable owning this entire company? Do I understand how it makes money? What protects it from competition?” This approach transforms investing from a game of speculation into a disciplined, business-like endeavor.

For many, owning shares in Berkshire Hathaway is seen as a simple way to invest alongside Buffett and Munger, gaining instant diversification across a portfolio of high-quality businesses like Burlington Northern Santa Fe (BNSF) railroad, Berkshire Hathaway Energy, and large public stock positions in companies like Apple Inc.. The company's book value has compounded at a far greater rate than the S&P 500 over the long run. The company has two classes of stock:

• Class A (BRK.A): These are the original shares, famous for their eye-wateringly high price (hundreds of thousands of dollars per share). Buffett has never split them to attract a specific type of long-term-oriented shareholder.
• Class B (BRK.B): These shares were created to be more accessible to the average investor, trading at a small fraction of the Class A price. They represent a smaller piece of ownership but make investing in Berkshire practical for nearly everyone.