Should I invest in Berkshire Hathaway Inc? Berkshire Hathaway is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States. It is a unique company that operates in diverse sectors, from insurance, confectionery, retail, railroads, home furnishings, machinery, jewellery, apparel, and electrical power, to natural gas distribution. Berkshire Hathaway has been overseen since 1965 by its chairman and CEO Warren Buffett and (since 1978) vice chairman Charlie Munger, who is known for their advocacy of value investing principles. Under their direction, the company’s book value has grown at an average rate of 20%, compared to about 10% from the S&P 500 index with dividends included over the same period, while employing large amounts of capital and minimal debt.
In this blog, we will explore Berkshire Hathaway’s history, leadership, financials, governance, and future prospects to help investors decide whether to invest in this unique company.
History of Berkshire Hathaway
Berkshire Hathaway traces its roots to a textile manufacturing company established by Oliver Chace in 1839 as the Valley Falls Company in Valley Falls, Rhode Island. Chace had previously worked for Samuel Slater, the founder of the first successful textile mill in America. Chace founded his first textile mill in 1806. In 1929, the Valley Falls Company merged with the Berkshire Cotton Manufacturing Company established in 1889, in Adams, Massachusetts. The combined company was known as Berkshire Fine Spinning Associates.
In 1955, Berkshire Fine Spinning Associates merged with the Hathaway Manufacturing Company, which had been founded in 1888 in New Bedford, Massachusetts, by Horatio Hathaway with profits from whaling and the China Trade. Hathaway had been successful in its first decades, but it suffered during a general decline in the textile industry after World War I. At this time, Hathaway was run by Seabury Stanton, whose investment efforts were rewarded with renewed profitability after the Great Depression. After the merger, Berkshire Hathaway had 15 plants employing over 12,000 workers with over $120 million in revenue and was headquartered in New Bedford. However, seven of those locations were closed by the end of the decade, accompanied by large layoffs.
In 1962, Warren Buffett began buying stock in Berkshire Hathaway after noticing a pattern in the price direction of its stock whenever the company closed a mill. Eventually, Buffett acknowledged that the textile business was waning and the company’s financial situation was not going to improve. In 1964, Stanton made an oral tender offer to buy back Buffett’s stake in the company for $11 1/2 per share. Buffett agreed to the deal. A few weeks later, Warren Buffett received the tender offer in writing, but the tender offer was for only $11 3/8. Buffett later admitted that this lower, undercutting offer made him angry. Instead of selling at a slightly lower price, Buffett decided to buy more of the stock to take control of the company and fire Stanton (which he did). However, this made Buffett the majority owner of a failing textile business.
Buffett initially maintained Berkshire’s core business of textiles, but by 1967, he was expanding into the insurance industry and other investments. Berkshire first ventured into the insurance business with the purchase of National Indemnity Company. In the late 1970s, Berkshire acquired an equity stake in the Government Employees Insurance Company (GEICO), which forms the core of its insurance operations today (and is a major source of capital for Berkshire Hathaway’s other investments). In 1985, the last textile operations (Hathaway’s historic core) were shut down.
The leadership of Berkshire Hathaway
Berkshire Hathaway has been led by legendary investor Warren Buffett since 1970. Over the years, Buffett has established himself as one of the most successful investors of all time, and his investment decisions have been closely watched by investors and financial analysts around the world.
In addition to Buffett, Berkshire Hathaway has also been overseen by vice chairman Charlie Munger since 1978. Munger has been a close confidant of Buffett and played a critical role in the company’s investment decisions. Together, Buffett and Munger have known for their advocacy of value investing principles, which have been instrumental in the company’s long-term success.
Succession Plans
Berkshire Hathaway has been preparing for the eventual departure of its two top leaders for years. Buffett has said that his successor will be chosen internally and that the company has a clear succession plan in place.
In 2018, Berkshire Hathaway appointed Ajit Jain and Greg Abel to vice-chairman roles, fueling speculation that they could be potential successors to Buffett and Munger. In May 2021, Buffett announced that he had chosen Greg Abel to be his successor as CEO of Berkshire Hathaway.
Despite the clear succession plan in place, many investors and analysts are concerned about the company’s future without Buffett and Munger at the helm. The two leaders have been instrumental in the company’s success, and their departure could create uncertainty and volatility for investors.
Financial Performance
If you’re looking to invest in Berkshire Hathaway then you should understand its financial performance. They have delivered impressive financial performance over the years, thanks in large part to their disciplined investment strategy and diversified portfolio of businesses.
For the fiscal year 2020, Berkshire Hathaway reported revenues of $245.5 billion and a net income of $42.5 billion. The company’s total assets were valued at $873.7 billion, and it employed around 360,000 people.
In recent years, Berkshire Hathaway has faced some challenges, including the impact of the COVID-19 pandemic and the struggling performance of some of its businesses. However, the company has a strong balance sheet and a history of resilience, which has helped it weather these challenges.
Should I Invest in Berkshire Hathaway
Long-term investors seeking exposure to a diverse portfolio of businesses and a disciplined investment strategy may find Berkshire Hathaway an appealing option. The company has a long history of success and is led by some of the most respected and experienced business leaders. One disadvantage of investing in Berkshire Hathaway is that its shares are among the most expensive in the market, with a per-share price of more than $500,000 as of March 2022. Furthermore, some investors may be concerned about the impact of Buffett’s and Munger’s eventual departure on the company’s future performance. Despite these reservations, many investors regard Berkshire Hathaway as a solid long-term investment, and the company’s stock continues to rise. Despite these concerns, many investors see Berkshire Hathaway as a strong long-term investment option, and the company’s shares continue to be popular among retail and institutional investors alike.
Berkshire Hathaway is a multinational conglomerate holding company that has delivered impressive financial performance over the years. The company’s disciplined investment strategy and diversified portfolio of businesses have helped it weather challenges and establish itself as a leader in the business world. While some investors may be concerned about the potential impact of Buffett and Munger’s eventual departure on the company’s future, Berkshire Hathaway has a clear succession plan in place and is well-positioned to continue delivering strong results for investors. Overall, investing in Berkshire Hathaway can be an attractive option for long-term investors who are looking for exposure to a diversified portfolio of businesses and a disciplined investment strategy. As with any investment, it’s important to do your research and consider your own investment goals and risk tolerance before making any decisions.
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