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

How Berkshire Hathaway Evolved From A Portfolio Of Stocks To A Conglomerate
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As recently as 1994, Berkshire Hathaway’s equity securities equaled 76% of total assets.

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

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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)

Year End Equity Securities Total Assets % Equity Securities
1994 $16,260 $21,338 76.20%
1995 21,108 28,711 73.2
1996 27,751 43,410 63.9
1997 36,248 56,111 64.6
1998 39,761 122,237 32.5
1999 39,508 131,416 30.1
2000 37,619 135,792 27.7
2001 28,675 162,752 17.6
2002 28,363 169,752 16.7
2003 35,287 180,559 19.5
2004 37,717 188,874 20
2005 46,721 214,368 21.8
2006 61,533 248,437 24.8
2007 74,999 273,160 27.5
2008 49,073 267,399 18.4
2009 56,562 297,119 19
2010 59,819 372,229 16.1
2011 76,063 392,647 19.4
2012 86,467 427,452 20.2
2013 115,464 484,131 23.8
2014 115,529 526,186 22
2015 110,212 552,257 20
2016 120,471 620,854 19.4

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David I Kass Clinical Associate Professor, Department of Finance Ph.D., Harvard University Robert H. Smith School of Business 4412 Van Munching Hall University of Maryland College Park, MD 20742-1815 Phone: 301-405-9683 Email: (link sends e-mail) Dr. David Kass has published articles in corporate finance, industrial organization, and health economics. He currently teaches Advanced Financial Management and Business Finance, and is the Faculty Champion for the Accelerated Finance Fellows. Prior to joining the faculty of the Smith School in 2004, he held senior positions with the Federal Government (Federal Trade Commission, General Accounting Office, Department of Defense, and the Bureau of Economic Analysis). Dr. Kass has recently appeared on Bloomberg TV, CNBC, PBS Nightly Business Report, Maryland Public Television, Business News Network TV (Canada), Fox TV, American Public Media's Marketplace Radio, and WYPR Radio (Baltimore), and has been quoted on numerous occasions by Bloomberg News and The Wall Street Journal, where he has primarily discussed Warren Buffett and Berkshire Hathaway. He has also launched a Smith School “Warren Buffett” blog. Dr. Kass has accompanied MBA students on trips to Omaha for private meetings with Warren Buffett, and Finance Fellows to Berkshire Hathaway’s annual meetings. He is an officer of the Harvard Business School Club of Washington, DC, and is a member of the investment and budget committees of a local nonprofit organization. Dr. Kass received a Smith School “Top 15% Teaching Award” for the 2009-2010 academic year.
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