Berkshire Hathaway
Berkshire Hathaway is a prominent holding company based in Omaha, Nebraska, recognized as one of the largest and most successful in the world. Originally founded in 1839 as a textile mill, the company underwent a significant transformation under the leadership of renowned investor Warren Buffett, who acquired it with the intent of restructuring and diversifying its investments. Buffett shifted the company's focus primarily towards the insurance sector, acquiring companies like Geico, and utilized the profits to invest in a variety of sectors, including major firms such as Coca-Cola, Apple Inc., and Delta Airlines.
Berkshire Hathaway's business model involves owning both controlling and minority shares in numerous companies, enabling it to exert influence while benefiting from their profitability. The company's stock has experienced substantial growth, rising from under $12 per share when Buffett took over to over $300,000 per share by early 2023. While insurance remains a critical component, Berkshire has significantly diversified its portfolio, which includes investments in utilities, food distribution, and various consumer products.
As Buffett approaches retirement, questions arise about the future leadership of the company, with Greg Abel set to succeed him. Berkshire Hathaway has also made headlines for its impressive market capitalization, surpassing $1 trillion in August 2024, marking a significant milestone for non-tech companies in the United States.
On this Page
Subject Terms
Berkshire Hathaway
- Date Founded: 1839
- Industry: Holdings Company
- Corporate Headquarters: Omaha, Nebraska
- Type: Public
Berkshire Hathaway is one of the largest and most profitable holding companies in the world. Holding companies are those that own shares in other companies, often managing and profiting from them. Berkshire Hathaway was founded as a textile mill that was purchased by investor Warren Buffett. Buffett assumed leadership of the company and restructured it into a holding company. He used it to purchase insurance companies, which he believed to be consistently safe, profitable investments. Buffett then used those profits to purchase shares in other companies. He often purchased controlling interests and reorganized them as subsidiaries of Berkshire Hathaway.
Berkshire Hathaway owns controlling and minority shares in numerous companies and industries including Coca-Cola, Geico, McLane Company, Delta Airlines, Apple Inc., and IBM. The firm’s network of investments has allowed it to weather economic downturns. Under Buffett’s leadership, the company’s stock prices have soared from less than twelve dollars per share to more than three hundred thousand dollars per share.
History
The modern giant Berkshire Hathaway began as a textile company. When the company was struggling, Warren Buffett, an investor, decided to buy shares in it to make a quick profit. Buffet had hoped that the company would later attempt to buy back the shares at a higher price. Berkshire Hathaway did attempt to buy back the stocks, offering a higher price than Buffett had originally paid. Buffett accepted the offer, but in finalizing the transaction, Berkshire Hathaway slightly lowered the offer. In response, Buffett purchased enough shares to take control of the company and fired the managers who tried to lower the offer.
Buffett did not want to invest in the textile industry. However, he decided to make use of his new purchase. The investor used Berkshire Hathaway to acquire numerous profitable insurance businesses. To do this, Buffett used “floating” money, or the profits from a transaction, to make additional investments. Most of these investments were safe and long-term, such as well-performing stocks that were expected to grow over time.
Berkshire Hathaway continued to use its profits to grow, expanding into numerous other business sectors. Buffett maintained a tight grasp on the company, personally choosing many of the company’s acquisitions and investments. The company quickly developed a reputation for sound investments, and others began to watch where Berkshire Hathaway invested to imitate it. Over time, the stock price of Berkshire Hathaway quickly outperformed the S&P 500, a stock market index. Berkshire Hathaway stock rose from less than twelve dollars per share when Buffett took over the company, to more than three hundred dollars per share in March 2023.
Impact
Berkshire Hathaway is a massive holding company headquartered in Omaha, Nebraska.
Although a significant part of Berkshire Hathaway’s is its insurance subsidiaries, the company has amassed holdings in numerous other economic sectors across the world. Berkshire owns the McLane Company, a wholesale distributor serving major food service retailers and Geico, one of the largest private auto insurance companies in the United States. The company has control of PacifiCorp, an electricity utility company that serves Washington, Idaho, Wyoming, Utah, and California. PacifiCorp serves more than 1.8 million customers with more than seventy power plants in the early 2020s. Also under Berkshire’s control are Lubrizol, a chemical manufacturer specializing in plastics, automotive additives, and pharmaceutical products, and Burlington Northern Santa Fe, which itself owns the BNSF Railway Company. Berkshire also has control of Taco Bell, KFC, 7-Eleven, Yum! Brands, and, until 2018, Walmart.
Berkshire Hathaway also has a minority share in numerous other companies. Though owning a minority share does not allow Berkshire to have complete control of a company, it allows Berkshire to have a significant say in its decisions. Berkshire has a minority share in the massive soft drink company Coca-Cola and IBM, the technology giant that produces specialized microchips for computers. Berkshire owns shares of Apple Inc., Delta Air Lines, and Goldman Sachs, another large investment firm.
In the early twenty-first century, industry experts speculated about how Berkshire Hathaway will perform after Buffett retires. Buffett served the company as both chairman and CEO since he acquired it, and has played a major role in choosing the company’s investments. Buffett revealed in 2021 that upon his retirement, Greg Abel would take on the role of CEO at Berkshire. The company's 2022 annual report, published February 2023, was signed by Buffet, who remained Chairman of the Board and CEO. The company reported $22.8 billion in losses in 2022 on $302 billion in revenues and the company's stock performance was reported to trail market averages for two decades, causing some to call for the ninety-two-year-old executive to step down.
On August 28, 2024, Berkshire Hathaway's market capitalization surpassed $1 trillion for the first time, making it the first US non-tech company to achieve that milestone.
Bibliography
Bern, Mark. “Analysis of Berkshire Hathaway Holdings Q4 2018.” Seeking Alpha, 18 Feb. 2019, seekingalpha.com/article/4241968-analysis-berkshire-hathaway-holdings-q4-2018. Accessed 30 Aug. 2024.
“Berkshire Hathaway Inc. 2022 Annual Report.” Berkshire Hathaway, 25 Feb. 2023, www.berkshirehathaway.com/2022ar/2022ar.pdf. Accessed 30 Aug. 2024.
Fontinelle, Amy. “Holding Company: What It Is, Advantages and Disadvantages.” Investopedia, 29 July 2024, www.investopedia.com/terms/h/holdingcompany.asp. Accessed 30 Aug. 2024.
Frankel, Matthew. “How Warren Buffett Found Berkshire Hathaway: A 56-Year Love Story.” The Motley Fool, 12 Dec. 2018, www.fool.com/investing/2018/12/12/how-warren-buffett-found-berkshire-hathaway-a-56-y.aspx. Accessed 30 Aug. 2024.
Hargrave, Marshall. “Berkshire Hathaway: What It Is, Market Cap, and Who Owns It.” Investopedia, 8 May 2023, www.investopedia.com/terms/b/berkshire-hathaway.asp. Accessed 30 Aug. 2024.
McFarlane, Greg. “How Warren Buffett Made Berkshire Hathaway a Winner.” Investopedia, 15 July 2024, www.investopedia.com/articles/markets/041714/how-warren-buffett-made-berkshire-hathaway-worldbeater.asp. Accessed Accessed 30 Aug. 2024.
Reiff, Nathan. “Top 6 Companies Owned by Berkshire Hathaway.” Investopedia, 28 Mar. 2024, www.investopedia.com/articles/markets/102715/top-6-companies-owned-berkshire-hathaway.asp. Accessed 30 Aug. 2024.
Rennison, Joe. "Warren Buffett’s Berkshire Hathaway Hits $1 Trillion in Market Value." The New York Times, 28 Aug. 2024, www.nytimes.com/2024/08/28/business/berkshire-hathaway-trillion-market-cap.html. Accessed 30 Aug. 2024.
“When Warren Buffett Retires, What Will Happen to Berkshire Hathaway Stock?” The Motley Fool, 6 Nov. 2018, www.fool.com/investing/2018/11/06/when-warren-buffett-retires-what-will-happen-to-be.aspx. Accessed 30 Aug. 2024.