Warren Buffett built Berkshire Hathaway over its first 50 years (1965 to 2014) by using insurance float to buy wholly owned businesses and long-term stakes in large companies, favoring "wonderful businesses at fair prices" over cheap but mediocre ones. Berkshire's book value per Class A share grew from $19 to $146,186 over that period, according to Buffett's 2014 shareholder letter. The company's main segments are insurance, regulated capital-intensive businesses (BNSF railroad and Berkshire Hathaway Energy), manufacturing, service and retail, and finance. This article was written in 2017; the holdings listed below reflect that time and have changed since.
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Berkshire has always compared the S&P 500 to it’s own per share book value as a tracking mechanism. In its earlier years of operation both its intrinsic value and book value were quite close. Over the years though Berkshire has acquired and operated businesses whose value outweighs a pure cost-based carrying value. This had led to a widening of the book value versus intrinsic value.
Early on Buffet made some strange and not very wise decisions like investing in the mills of New England…Berkshire being one of them. He acquired them when most of the mills were closing down. Soon enough they did start shutting down. Buffet’s logic was that these companies had one last – kick to offer, not unlike the last nicotine puff of a cigar. He quickly realized this strategy might earn him short- term gains but not long-term ones. It was here his long-term partner Charlie Munger stepped in to undertake course correction. His advice which helped Buffet build his profitable business was “Forget what you know about buying fair businesses at wonderful prices; instead buy wonderful businesses at fair prices.”
Warren Buffet Investment Portfolio
As of 2017, Berkshire's wholly owned businesses included Applied Underwriters, BoatUS, Brooks Sports, The Buffalo News, Business Wire, Clayton Homes, Dairy Queen, Duracell, Forest River, Helzberg Diamonds, Jordan Furniture, Lubrizol, The Pampered Chef, See Candies and Star Furnitures.
As of 2017 it also held minority stakes in Wal-Mart stores, UPS, Visa, Verizon, Mastercard, Kinder Morgan, Goldman Sachs, IBM, Delta Airlines, Apple to name a few.
Buffet firmly believes in American companies and he has strong faith in the American economy. He also strongly believes in the concept of intrinsic value. He hopes Berkshire will continue to build intrinsic value by:
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Improving the earning power of it’s subsidiaries
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Increasing earning through bolt-on acquisitions
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Benefit from the growth of investees
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Repurchasing Berkshire shares when available at reasonable prices
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Making a few large acquisitions that will add value to Berkshire
Berkshire has made wise investments in car, home, computer, credit card, insurance, retail, banking industries –all of whom are required at all times by the public.
According to Buffett's 2014 letter, Berkshire's per-share investments increased 8.4% to $140,123 and per-share pre-tax earnings from non-insurance businesses increased 19% to $10,847. Since 1970, per-share investments had grown at 19% a year and those earnings at 20.6% a year.
Buffet sees himself operating in 4 key areas and assesses each separately. Therefore, Warren Buffet Investment Portfolio primarily consists of these four sectors.
Insurance
This sector has helped Berkshire grow continuously from the 60’s with their investments in National Indemnity and National Fire & Marine.
Regulated Capital Intensive Businesse
Berkshire owns BNSF, a railroad, and Berkshire Hathaway Energy, a utility company. These companies are both characterized by earnings that will cover their interest payments even in the worst of economic conditions.
Finance and Financial Products
Berkshire owns Clayton Homes, the largest US builder of manufactured homes.
Investments
What Warren Buffet Says About His Portfolio
Buffet looks on his investing history of 5o years and has this to share.
“The unconventional, but inescapable conclusion to be drawn in the past fifty years is that it has been safer to invest in a diversified collection of American Businesses than to invest in securities – Treasuries for example – whose values have been tied to American currency. This was also true in the preceding half-century, the period including The Great depression and two world wars. Investors should heed this history. To one degree or another it is almost certain to be repeated during the next century.”
He continues:
“Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency –denominated instruments are riskier investments-far riskier investments-than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEO’S astray.”
Conclusion
Buffet and his team have followed a consistent strategy of maintaining a diversified portfolio in sound businesses with good financials. Of course there have been some misses but by and large he has done good by his investors.
Buffet has often been chastised by his Vice-Chairman Charlie Munger for the times he has indulged in thumb-sucking – a metaphor for sitting without taking decisions investment-wise. Despite this, Buffet has managed to pull out some aces, work steadily and strongly to generate wealth for his investors every year.
