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So, what are the companies owned by Warren Buffet’s Berkshire Hathaway?
Warren Buffet prefers to own great businesses either by acquiring them or by buying their shares in the stock market.
Today, let’s go through ALL the companies that are owned by Warren Buffet’s Berkshire Hathaway and why he chose to buy these companies.
Warren Buffet’s Investing Principles For Buying Businesses
Warren Buffet believes that he should only expect to make money from things that he understands.
When it comes to investing in businesses, he only invests in businesses which he will likely know what their economics will look like 10 or 20 years from now.
He cites the example of a simple “Chewing Gum” business.
Internet or other future technology would not change the way people chew gum, nor would it change which gum they chew. The companies (or brands) that own the “chewing gum” market in a big way would still be here 10 years from now. Although he might not be able to pinpoint exactly what the numbers (e.g. revenue, earnings, etc) are going to be like, he would not be far off if he was going to predict their numbers.
Warren Buffet calls “evaluating this kind of company” his circle of competence.
By that, he means that he understands what the company does, the economics of the business, and the competitive aspects of the company.
There are many companies with wonderful futures, but it’s NOT easy to pick the winners.
Here’s Warren Buffet’s famous example.
When cars were first invented, everyone knew that the auto industry would have a huge impact on people’s lives.
There used to be 2000 car companies, but only 3 survived.
The odds of picking the winner are NOT good.
Even if you invested in ALL 2000 car companies, you would not have made any money.
What is worse, the 3 car companies that survived didn’t do so well financially.
Another example is airplane companies.
In the 1920s, there were 400 airplane companies, but they all disappeared.
It was a terrible business.
Here are two more examples.
TV set manufacturers in the US got put out of business by low-cost competitors in other countries.
Radio manufacturers no longer exist in the US.
On the other hand, Coca-cola, founded more than 100 years ago, is selling more than one billion servings of its products every single day throughout the world, despite there has been other copiers.
So, understanding the economic characteristics of the business is different from predicting the fact that the industry is going to do wonderfully.
Warren Buffet stays out of investing in technology companies because he DOES NOT know who is going to win, although he thinks the internet, just like the auto and airline industry, would have a huge impact on people’s lives.
So, defining your circle of competence is very important.
It’s not about how large your circle of competence is because you don’t have to be an expert in everything.
Rather, it’s ALL about knowing what you know and what you don’t know and staying inside of your circle of competence.
Here are Warren Buffet’s criteria for a great business that he wants to invest in:
- A business that he understands
- Favorable long-term economics
- able and trustworthy management
- a sensible price tag
According to Warren Buffet, a truly great business must have an enduring moat that protects excellent returns on invested capital.
His criterion of “Enduring” causes him to stay away from companies in industries that are prone to rapid and continuous change.
In short, long-term competitive advantage in a stable industry is what Warren Buffet looks for in a business to buy.
Insurance Companies Owned by Warren Buffet’s Berkshire Hathaway
Warren Buffet invests in insurance companies because he knows this business and its economics very well.
For insurance companies, you get paid premiums upfront.
If you earn a positive underwriting profit, you are getting paid to hold a large amount of money before you need to pay out some of the premiums you have collected.
Even if you break even or lose money in the insurance business, you could still be profitable because you can earn a guaranteed return (e.g. treasury bills) on the money that you receive.
This is the perfect business for Warren Buffet because he is great at redeploying capital to make better-than-average returns.
Warren Buffet understands that insurance companies will do well as long as they practice strong discipline in underwriting, keep their costs low, and set aside proper reserves.
For example, Berkshire Hathaway Reinsurance Group, under the leadership of Ajit Jain, made billions in profits for Berkshire Hathaway over the years.
On top of that, Warren Buffet efficiently redeployed the money to earn better-than-average returns on other investments.
There are a total of 11 insurance companies owned by Warren Buffet’s Berkshire Hathaway:
- Berkshire Hathaway Reinsurance Group
- General Re
- Berkshire Hathaway Homestay Companies
- Berkshire Hathaway Specialty Insurance
- Berkshire Hathaway Guard Insurance Companies
- MedPro Group
- MLMIC Insurance Companies
- National Indemnity Primary Group
- United States Liability Insurance Companies
- Central States Indemnity
Railroad, Utilities & Energy Companies Owned By Warren Buffet’s Berkshire Hathaway
Warren Buffet’s Berkshire Hathaway also owns the railroad, utilities, and energy companies.
These businesses all have easy-to-understand economics and are unlikely to get disrupted by any new technology in the foreseeable future.
People need electricity to power their homes.
So, energy companies will still exist.
The same goes for railroad companies that are needed to help transport goods around the country.
Most of them also have a very strong economic moat.
For example, BNSF Railway is one of the largest freight railroads in North America.
It’s one of the five Class 1 freight railroad companies in the US.
This is what Warren Buffet said in his recent annual letter about BNSF:
“BNSF continues to be the number one artery of American commerce, which makes it an indispensable asset for America as well as for Berkshire. If the many essential products BNSF carries were instead hauled by truck, America’s carbon emissions would soar.”
In terms of business economics, all of these businesses generate very stable earnings and have strong positive operating cash flow.
In 2021, BNSF had record earnings of $6 billion.
It’s a cash cow for Warren Buffet who uses the cash to invest in other wonderful businesses.
Here’s a list of them:
- BNSF Railway
- BNSF Logistics
- Berkshire Hathaway Energy Companies
- MidAmerican Energy
- NV Energy
- Northern Powergrid
- BHE Pipeline Group
- BHE Transmission
- BHE Renewables
- MidAmerican Energy Services
- HomeServices of America
Manufacturing Companies Owned by Warren Buffet’s Berkshire Hathaway
Warren Buffet also owns a lot of manufacturing companies.
For manufacturing companies, Warren Buffet picked some winners, but he also picked quite a few losers.
For one, he bought Dexter Shoes which got put out of business by China’s shoe manufacturers that can produce shoes at a much cheaper cost.
Precision Castparts is an aircraft and industrial parts maker that Warren Buffet admitted he paid too much.
In Aug 2020, Berkshire Hathaway wrote off about $9 billion of Precision Castparts’ value.
Warren Buffet said he was wrong in judging the average amount of future earnings and consequently wrong in his calculation of the proper price to pay for the business.
Fechheimer, a uniform manufacturing business, was bought by Warren Buffet in 1986.
In the first 7 to 8 years, it generated good returns and returned all Warren Buffet’s investments through dividends.
The business is still around but it is getting smaller mostly because of the intense competition.
Despite the failed investment in Dexter Shoes, Warren Buffet bought another running shoe company called Brooks Sports in 2001 when the shoe company was on the brink of bankruptcy.
With a new CEO and a new strategy to focus on running shoes, Brooks Sports has been growing and taking market share from Nike and Adidas.
In 2021, it surpassed 1 billion in revenue and had the largest market share in adult running shoes.
The manufacturing business is simple to understand, but building and growing a manufacturing business is not easy.
That’s why you can see that even Warren Buffet made a few losing investments in manufacturing companies.
Here’s a list of manufacturing companies owned by Warren Buffet’s Berkshire Hathaway:
- Benjamin Moor
- Brooks Sport
- Clayton Homes
- Forest River
- Fruit of the Loom
- H.H. Brown Shoe Group
- IMC International Metalworking Companies
- Johns Manville
- Larson Juhl
- Liquid Power Specialty Products
- Precision Castparts
- Richline Group
- Scott Fetzer Companies
- Shaw Industries
Service & Retailing Companies Owned by Warren Buffet’s Berkshire Hathaway
Warren Buffet also owns a lot of service and retailing companies.
The economics of service and retailing companies are simple to understand.
When you look at the companies (e.g. See’s Candies, Nebraska Furniture Mart, Dairy Queen, Ben Bridge Jeweler) that Warren Buffet bought, all these companies are in very stable industries.
Everyone needs to buy furniture.
Everyone eats ice cream and candy.
This is not going to change.
On top of that, business economics is also good.
Take See’s Candies for example.
Warren Buffet bought See’s Candies for $25 million in 1972 when its sales were $30 million and pre-tax earnings were less than $5 million.
The capital required to run the business was $8 million.
That translated to a 60% pre-tax return on invested capital, which is amazing.
Two factors helped minimize the funds required for operations:
- Products are sold for cash, so there are no accounts receivable
- The production and distribution cycle is short, so that minimizes inventories.
Over the years, See’s Candies’ sales grew to close to $400 million with a pre-tax profit of about $80 million.
But, the required capital to run the business only grew to $40 million.
That means Warren Buffet only has to reinvest $32 million since 1972 to handle the growth.
In the means, pre-tax earnings have totaled about $1.3 billion. All of that, except for the $32 million reinvested back into the business, has been sent to Warren Buffet to buy other wonderful businesses.
Here’s a list of service and retailing companies owned by Warren Buffet’s Berkshire Hathaway:
- Affordable Housing Partners
- Ben Bridge Jeweler
- Berkshire Hathaway Automotive
- Business Wire
- Charter Brokerage
- Dairy Queen
- Detlev Louis
- Helzberg Diamonds
- Jordan’s Furniture
- Mclane Company
- Nebraska Furniture Mart
- Oriental Trading
- Pampered Chef
- R.C. Willey Home Furnishing
- See’s Candies
- Star Furniture
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