Last year, Maureen and I took steps to ensure that our clients would be cared for in the unlikely event that we were disabled or died in a common disaster. We engaged in a Contingency Agreement with another advisor who would be able to step-in if this unfortunate event ever did occur. This threat is not only for small companies, but for any company that is run by a well-known individual.
Warren Buffett runs the $360 billion conglomerate, Berkshire Hathaway. He and his partner Charlie Munger have been integral in the tremendous growth of this company. It has been widely reported that the firm would have a hard time surviving if Warren Buffett were to die or retire.
Last year, a book written by Lawrence Cunningham, refutes this idea by decribing the culture and vast industries represented in the company. The book is entitled “Berkshire Beyond Buffett – The Enduring Value of Values”. Lawrence traces the firm from a struggling textile company into a corporate legacy.
Who has ever benefited during the past 237 years by betting against America? Warren Buffett
Warren Buffett has often been described as the “world’s best investor”. Many believe that his legacy was derived by being a great “stock picker”. This is evident as a lunch with Warren is often sold for the benefit of a charity for thousands of dollars with the donor hoping to get insight on a stock pick. And while he has had some success in this front (stock ownership in his “Big Four” investments– American Express, Coca-Cola, IBM and Wells Fargo), his real gift with investing is closer to being a successful private equity investor.
The book highlights the culture that he has instilled in all of the companies that have been added to the conglomerate. He searches for companies that are run with an entrepreneur spirit with strong reputations with a zeal to be cost-conscious. They often take over full ownership but allow the management to continue to manage the business.
Let’s look into the firm valued at $360 billion and now a member of the S&P 500 Index. We often discuss the need to be invested in the great companies based here in the U.S. and the world and Berkshire Hathaway is a great example of the best financed, best managed companies in the world. In fact, Berkshire now owns 8.5 companies that, were they stand-alone businesses, would be in the Fortune 500. As our friend Nick Murray states “ Stocks are not merely pieces of paper but thriving and often intensely human businesses”.
The book describes how the company has 4 major sectors. Insurance which is the oldest sector and a major driver to the business value. GEICO and Gen Re are well-known BKA firms.
The second business sector has 2 distinct business activities: energy and transportation. The energy sector lead by Berkshire Hathaway Energy (formerly MidAmerican Energy) invests in energy including natural gas pipelines. The transportation sector is now headlined by the railroad company, Burlington Northern Santa Fe. Other transportation companies are Net Jet, a fractional private aircraft ownership and FlightSafety, which provides pilot training.
The third sector is the finance sector with varied products. The sector includes Clayton Homes – a builder, seller and financier of manufactured homes, CORT, which leases furniture, and XTRA, a lessor of trucking equipment.
The last sector has 8 sub-divisions which can be described as the retail sector. The companies are varied from company-owned food companies Dairy Queen (a Crimmins family favorite) and See’s candy franchises to jewelry retailers like Helzberg Diamonds. They own a score of regional newspapers like Buffalo News and the Richmond Times-Dispatch. This sector also has a construction division with well-known firms Benjamin Moore (paint), Johns Manville (building materials) and Acne (bricks). Lastly, they own apparel companies Fruit of the Loom, Brooks (sneakers) and Garan (children’s clothing).
Surprisingly, this description is just the beginning. Hopefully you can get a sense that this firm will be around for decades to come and represents investors “betting on America”. And as discussed, the firm flourishes in the diversity of the products that it invests in. That is the true success of Berkshire Hathaway and Warren Buffet.
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