How Berkshire Hathaway Evolved From A Portfolio Of Stocks To A Conglomerate

As recently as 1994, Berkshire Hathaway’s equity securities equaled 76% of total assets.

At year-end 2016, Berkshire Hathaway’s equity securities equaled 19% of total assets.

Get The Full Warren Buffett Series in PDF

Get the entire 10-part series on Warren Buffett in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Berkshire’s focus on acquiring businesses has resulted in a conglomerate of 80 companies.

Warren Buffett acquired Berkshire Hathaway (NYSE:BRK.A), a textile manufacturer, in 1965. In 1967, Berkshire paid $8.6 million to buy National Indemnity Company, a small but profitable Omaha-based insurer. In 1985, Buffett shut down the textile business, but retained its corporate name. The property casualty branch of the insurance industry has been the engine that has propelled Berkshire’s expansion since 1967. Since premiums were paid in advance of claims, Berkshire used this “float” along with underwriting profits to grow the company through investments and acquisitions. Subsequent acquisitions of GEICO in 1995 and entry into the reinsurance business, through the purchase of General Re in 1998, substantially added to Berkshire’s stake and float in this industry.

As of December 31, 2016, Berkshire Hathaway had acquired approximately 80 companies within its four major sectors of operations: (1) Insurance, (2) Regulated, Capital Intensive Businesses, (3) Manufacturing, Service and Retailing Operations, and (4) Finance and Financial Products. Berkshire’s largest acquisitions were BNSF (Burlington Northern Santa Fe Railroad) in 2010, Precision Castparts in 2016, Berkshire Hathaway Energy in 1999, Marmon (manufacturer of transportation equipment including rail cars) in 2007, Lubrizol (lubricants) in 2011 and IMC (formerly Iscar – machine tool manufacturer) in 2006.

As these acquisitions were being made, the relative importance of Berkshire’s equity securities as a percentage of total assets has declined substantially. As recently as 1994, Berkshire’s equity securities equaled 76% of total assets. As of year-end 2016, it comprised only 19% of total assets. This ratio dropped sharply in 1998 to 33% from 65% the year before with the acquisition of General Re. Since 2001, Berkshire’s portfolio of equity securities has averaged about 20% of total assets. As of December 31, 2016, Berkshire’s largest equity holdings consisted of: Wells Fargo (NYSE:WFC) valued at $28 billion, Coca-Cola (NYSE:KO) ($17 billion), and International Business Machines (NYSE:IBM) ($13 billion).

From Berkshire Hathaway’s annual reports 1994 – 2016:
(dollars in millions)