This mega-corporation has developed its operations in various economic sectors ranging from insurance and reinsurance to food industry, finance, energy, textile, transport, press, services, retail sales, ...
It also has a stock portfolio worth tens of billions of USD, with considerable shares in big multinationals such as American Express and Coca-Cola.
Initially, Berkshire Hathaway was a small textile company. It was set up in 1950 following the merger between Hathaway Manufacturing Company and Berkshire Fine Spinning Associates.
In 1962, the American investor Warren Buffett showed interest in the company from which he purchased shares at the rate of 7.5 USD then ended up acquiring the entire capital in 1965. He gradually winded up the textile activity and turned the company into an investment fund whose share value amounted to 537 150 USD in August 2023.
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Warren Buffet: Omaha's wise citizen
Berkshire Hathaway is chaired by its builder Warren Buffett who holds approximately 38% stakes. Renowned for his wise decisions, he has been behind the performance achieved by the holding during the recent decades.
Born in Omaha on August 30, 1930, son of a stock market broker, he pursued his studies at Nebraska university and obtained a Master's degree in economics from the Business School of Columbia.
He started his professional career in 1954 working for Benjamin Graham's investment company “The Graham Newman” in New York. Then, he decided to go back to his native town to work as a broker in his father's company.
Strongly determined to pursue his career in the finance sector, Buffett set up in 1956 his first investment company, followed by others which he pooled up into the “Buffett Partnership Limited”. So he started to run stock market portfolios making use of the money collected from his friends and relatives, thus, making capital gains amounting to 30% a year in market where the average performance is set between 7 and 10%.
By purchasing Berkshire Hathaway in 1962, he closed down all his former companies to focus his attention on his last acquisition which he converted into an investment fund.
As he wished, Warren Buffett earns an annual salary of 100 000 USD from Berkshire Hathaway and receives no dividends.
Now, he is the world's sixth wealthiest man according to the 2023 ranking of Forbes magazine with a fortune estimated at 11.9 billion USD on May 1 of the same year. Almost all of his wealth, that is, 99% shall be given away to charities after his death.
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The investment strategy
Warren Buffett's investment principles remained unchanged since the start of his career. They rest on:
- The purchase of depreciated securities
- The acquisition of creeping or under-rated companies, having, however, a strong growth potential in the long run
- The investment in activities easy to understand, avoiding especially high technology companies
- The maintaining of shares on the long-term basis
- Maintaining leaders who performed well in the company
Such a cautious strategy has not kept the group from suffering an unexpected setback in 2008 and during the first quarter of 2009.
The impact of the financial downturn on Berkshire Hathaway
The crisis has decidedly spared no one, not even the Omaha oracle: Warren Buffett. His conglomerate has been seriously hit hard by the international recession. The group's 2008 results, followed by those of the 2009 first quarter have displayed heavy losses as a result of the particularly costly investments and the errors of judgment in a context characterized by the general weakness of the American economy.
Consequently, the group's security has lost 39% of its value in 2008 while operating profit dwindled down by 12% during the first quarter of 2009 after the 62% decline between 2007 and 2008. Net losses amount to 1.5 billion USD in the first quarter 2009.
These losses have tarnished the group's image which has already suffered a decrease of its rating by the two agencies, Fitch and Moody's. The default risk rating has gone down a notch at AA- by Fitch while Moody's has downgraded the holding two rungs. Standard & Poor's has, on its part, maintained its maximum rating but assigned to the group a negative outlook.
Berkshire Hathaway: the insurance sector
Since he started as an investor, Warren Buffet has always had a finger in insurance. His investments in the insurance sector date back to 1967 when he acquired his first insurance company, the National Indemnity, followed a little later by GEICO.
Very quickly, insurance and reinsurance have become the driving force of the Berkshire system which is a permanent generator of liquidity. Consequently, the premiums collected from insurance and reinsurance operations are reinvested in other sectors: either in stock market securities or in the purchase of companies.