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, Neb., and was originally a company comprised of a group of textile milling plants.

Understanding Berkshire Hathaway

Buffett became the 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 May 4, 2021, Berkshire Hathaway had a market capitalization of over $600 billion, making it one of the largest publicly traded companies worldwide.

Because of Berkshire Hathaway's long history of operating success and keen investments, the company has grown into the ninth-largest public company in the world in terms of market capitalization (as of June 2020). Berkshire’s stock trades on the New York Stock Exchange as two classes — A shares and B shares. Class A shares trade for $421,420 per share as of May 4, 2021.

2,810,526%

The overall return of Berkshire Hathaway’s stock from 1965 to 2020; during this same period, the S&P 500 returned just 23,454%.

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 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 its latest 13F filing, Feb. 2, 2021, Berkshire’s public market equity portfolio was valued at nearly $270 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 over-weighted in order to leverage the anticipated return. Over time, Buffett’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.

Special Considerations

From 1965 to 2019, the annual performance of Berkshire Hathaway’s stock was more than twice that of the S&P 500 index. Berkshire’s stock generated an annualized 20% over that period, while the S&P 500’s annualized gain was 10.2%.

Succession has always been a hot topic for Berkshire, with the big question being: Can Buffett’s replacement continue the streak of market out-performance? The question becomes even more pressing when you consider that Buffett turned 90 years old in August of 2020.

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.

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.

Buffet has not announced any retirement plans. Still, it is good that the question of succession has been answered considering that the Oracle of Omaha turns 91 years old in August 2021.