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Friday, February 23, 2024

Berkshire Hathaway: the corporation from which Warren Buffet controls the world

Berkshire Hathaway is the gold mine that has made Warren Buffet, a reference in the business world. Your strategy? Plant your seed in the most important corporations on the planet.

Warren Buffet is already part of the club of the richest rich: that of those who treasure a fortune of more than 100,000 million dollars. For a week, the 90-year-old investor has been part of an exclusive group of only six members that also includes Jeff Bezos, Elon Musk, or his friend Bill Gates, according to the millionaire index produced by Bloomberg.

The heat in the US stock market since May 2020 has led Buffet’s assets to grow in less than a year from about $ 69.2 billion to $ 100.4 billion, 45% more. The S&P 500 Index has not stopped rising since the first quarter of 2020 when sharp falls were recorded due to the expansion of COVID-19. And the shares of its flagship Berkshire Hathaway have also skyrocketed – up 44% since May 2020.

Berkshire Hathaway is the source of almost all of Buffett’s wealth. It is one of the largest conglomerates in the world, based in Omaha, which has stakes in some of the most powerful multinationals: it owns 9.3% of Coca-Cola, 0.1% of Amazon, 18 8% from American Express, 5.6% from Apple, 26.7% from Kraft Heiz, 11.7% from Bank of America, 2.5% from Chevron, or 1.7% from Mondelez, among other companies.

That’s why Buffet eats breakfast every morning at McDonald’s, where he enjoys his Coke and a Heinz ketchup burger. And you will probably pay with your American Express card. Surely you are also a regular customer of one of its companies and until now you did not know it, since it has a presence in all sectors of the economy: banks, energy, health, insurance, fashion, construction, transport, and the media.

To put the size of the conglomerate in context, it currently accumulates assets of $ 873,729 million. That amount is approximately more than half of the 1.19 trillion euros of Spain’s GDP in 2020, that is, all of Berkshire Hathaway’s controls assets worth close to half the size of the Spanish economy during the past year.

Berkshire Hathaway, the guru of value investing

Berkshire Hathaway has popularized the concept of value investing, a long-term investment philosophy that seeks to buy shares of consolidated businesses when they face specific problems. But not just any company is worth it, but only those that have such a unique characteristic that it will always allow them to maintain a dominant position in the market. They are stable businesses that must be protected by “impassable moats”, as the Oracle of Omaha says.

“In business, I look for castles protected by impassable moats, ” he says in one of his most frequently quoted sentences referring to the importance of finding businesses with moats, a word that in English means moat. These moats give companies certain competitive advantages that allow them to defend themselves against attacks from their competitors. A good example is Duracell, which is 100% controlled by Berkshire Hathaway, a company that has been a leader in the alkaline battery market for decades and will most likely maintain that position in the future.

As part of its strategy of investing in traditional businesses, Berkshire Hathaway had stayed away from tech corporations until May 2016, when it bought its first 9.8 million shares in Apple. The operation has been spectacular because those shares were bought at about 23 dollars and today they are around 125. “It’s probably the best business I know of in the world,” Buffet said of Apple in an interview in February 2020.

This diversification and search for well-established businesses have allowed it to weather the 2020 crisis well. Last year, its income was 245.5 million dollars, just 3.5% less than the 254.6 million in 2019. This reflects that the sales of Berkshire subsidiaries have remained stable in a peculiar year in which consumption has been severely affected by the expansion of the new coronavirus.

But COVID-19 is nothing more than a temporary situation that will temporarily affect the businesses of its subsidiaries. Ultimately, the virus may impact the economy for 1, 2 or 3 years, but eventually, things will return to their normal course. And Buffet is a guy who always has a long-term vision, just look at Berkshire Hathaway’s history: a company has its origins in 1839 and has been profoundly transformed over time.

Initially, it was a textile factory in which Buffet started investing in 1962. In 1967, he took over the majority of the shares and began to diversify the company’s business, buying in the 1970s a stake in GEICO, a major car insurer in the United States that is currently 100% controlled by Buffet. Gradually, Berkshire Hathaway expanded into other businesses until its textile operations ended in 1985.

With his value investing strategy, Buffet has achieved that the class A shares of his company have risen 131,452% since 1980, going from 290 dollars to the current 381,501, which has made it one of the largest fortunes in the world and it has enriched its thousands of shareholders.

With Buffet at the helm, Berkshire Hathaway has established itself as one of the largest corporations in the world for the past 40 years. The question that remains to be answered is what will happen to Berkshire when the Oracle of Omaha is gone.

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