They say it’s the root of all evil, but money makes the world go round.
Though it hasn’t always been dollars and cents, people have been using currencies practically since they’ve been living in civilizations, so it’s hard to fault the savvy few who find a way to turn all of those transactions into more money.
That’s precisely what the great minds behind Berkshire Hathaway have accomplished: a clever system of investment with a proven record of success. This is a relatively innovative way to run a company, and can be considered unorthodox opposed to other more traditional companies.
The Sum of Its Parts
Berkshire Hathaway is a holding company; primarily, its components are insurance companies, but it also owns pieces of other private businesses like Dairy Queen and Fruit of The Loom. Basically, a holding company owns many pieces of other companies’ stocks, and thereby becomes a corporation of its own. Its influence transcends itself in this way, and has a far larger reach.
In this way, Berkshire Hathaway does not itself provide a service or create any goods. Instead, it owns many other companies that perform these functions. This means that Berkshire Hathaway is something like a highly diversified investment portfolio, helmed by one of the greatest minds for finance the country has ever seen.
Textiles to Trades
Berkshire and Hathaway were two separate New England companies at one time, both of which operated textile plants. They merged in the 1950s, and an investment firm led by none other than Warren Buffett took control of the business in 1965.
Buffett adopted a new strategy in investing: he bought significant stock in businesses that he believed were undervalued, then simply allowed them to maintain autonomy. Of course, this method required that Buffett be extremely discerning about which companies in which Berkshire Hathaway invested. It was also a gamble of the sort, because there is no way to predict what sort of companies will do well in the future.
Despite the non-concrete nature of the business, Berkshire Hathaway has grown over the last 6 decades into the fifth largest company in the world, when looking at it in terms of market capitalization.
Competing Across Industries
Being that they operate within a number of different spaces, it’s hard to put Berkshire Hathaway into a single box of competition. Other holding companies, like Fidelity, are the most obvious competitors, but the fact is that if they’re not operating within the same industries, holding companies aren’t really in each other’s ways.
In this sense, it’s easier to assert insurance companies not owned by Berkshire Hathaway, like Progressive or Liberty Mutual, are their most direct competition.
Behind The Scenes
Because Berkshire Hathaway doesn’t actually offer or produce things for consumers, their visibility in the public eye is due entirely to their holdings. When one of their businesses is extremely successful, or is the subject of a scandal, it inevitably comes back on Berkshire Hathaway.
Such was the case in 2006 when one of their insurance companies was found to have been engaging in unethical accounting, costing Berkshire Hathaway more than $90 million.
Despite the somewhat volatile nature of their public appearance, there’s no denying Berkshire Hathaway’s prowess in the financial world. In 2019, the company rests at number 4 on the Fortune 500. Though this is down one spot from 2018, it isn’t likely that they’ll continue to fall, as it’s easy to pinpoint that Kraft Heinz was the investment pulling them down, while Apple bolstered their revenue.
Warren Buffett has proven that he knows investments, and Berkshire Hathaway’s legacy of profitability asserts that time and time again.