By Courtney Carlsen
Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) has delivered exceptional returns over the past 60 years thanks to the leadership and investing acumen of CEO Warren Buffett and the late Charlie Munger. The two built Berkshire into a respected global conglomerate, exemplifying the value of long-term, strategic investing, and created substantial wealth for investors along the way.
The company’s disciplined, value-oriented investment approach focuses on businesses with strong economic moats and competitive advantages for sustainable growth. Its long-term success is a reason why many investors closely follow Berkshire’s investment portfolio for inspiration.
As Warren Buffett hands leadership to Greg Abel, questions arise about Berkshire’s future. While the company has excelled up until now, could investing in Berkshire Hathaway today set you up for life? Let’s dive into the expansive business and its competitive moat to find out.
Berkshire Hathaway’s diverse portfolio of businesses
Berkshire Hathaway embodies the success of long-term, value-oriented investing. It’s largely recognized for Warren Buffett’s long-held positions in companies such as Coca-Cola and American Express. However, its true strength comes from its diverse operations, especially its insurance segment, which is a key revenue source.
Berkshire’s insurance business acts as an engine for its portfolio, generating income through upfront premium collections while claims are paid out later. This creates a “float” — a cash reserve that can be invested in Treasuries or other short-term, safe instruments, thereby boosting overall revenue. For example, last year, its insurance underwriting business generated $9 billion in earnings, while its insurance investment income contributed $13.7 billion in earnings.
The benefits of this approach are particularly pronounced during periods of rising interest rates. For example, Berkshire’s $13.7 billion in investment income last year was more than double what it earned in 2022, highlighting how its large insurance business can help the company do well in various economic conditions.
In addition, Berkshire Hathaway owns numerous companies across various industries, including transportation, such as railroads, where 28% of all freight in the U.S. is still transported. It also owns consumer goods brands, like Dairy Queen, See’s Candies, Duracell, and Fruit of the Loom. It also has exposure to utilities and energy through Berkshire Hathaway Energy.
Looking ahead to what Berkshire’s future has in store
Investors considering Berkshire Hathaway amid recent leadership changes may feel both anticipation and uncertainty. In November 2023, the company lost Charlie Munger, a key figure; meanwhile, Warren Buffett is set to step down as CEO at the end of this year. The transition marks a significant change for the company.
Buffett has announced that Greg Abel will become CEO, a role he has prepared for since joining Berkshire in the late 1990s. Abel’s success will depend on maintaining the long-term investment philosophy and culture established by Buffett and Munger. Additionally, Todd Combs and Ted Weschler, who joined Berkshire as investment managers in 2010 and 2012, respectively, will assume a more significant role in managing Berkshire’s extensive portfolio.
Before joining Berkshire Hathaway, Combs ran Castle Point Management from 2005 to 2010, achieving a cumulative return of 34% and beating the Great Recession bear market in the process. Meanwhile, Weschler’s impressive investment track record is evident in his transformation of a $70,000 Roth IRA into $264 million over three decades, along with returns of 1,236% at Peninsula Capital Advisors from 1999 to 2011.
Combs and Weschler were instrumental in getting Berkshire Hathaway to invest in Apple in 2016, which has since become one of the conglomerate’s best-performing stocks over the past decade. Now, they will have a chance to carry on Berkshire’s investing legacy.
Will buying Berkshire Hathaway set you up for life?
I think Berkshire is one of the best stocks investors could buy today. To me, investing in Berkshire is akin to investing in a diversified portfolio of stocks, given its extensive holdings of privately held businesses across various industries, which continue to deliver solid returns.
That said, as much as I like Berkshire for its wide-ranging business and massive cash pile, investors should ensure that they aren’t too reliant on any single stock to build their wealth. Most importantly, investors should develop the habit of consistently investing in high-quality companies, such as Berkshire Hathaway, as part of a diversified approach to building up wealth over time.
Courtney Carlsen has positions in American Express and Berkshire Hathaway.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Censational Market.
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