5 Things You Didn't Know About Berkshire Hathaway

By Matthew Frankel Industries Fool.com

Warren Buffett, and the company he runs, Berkshire Hathaway (BRK-A) (BRK-B), are widely followed. However, even if you keep track of Buffett's investments and try to learn his investment style, here are some things you may be surprised to learn about the Oracle of Omaha and his company.

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1. Warren Buffett is not too proud of his investment in Berkshire Hathaway

When Buffett bought enough shares to take control of Berkshire Hathaway, the stock was trading for about $11.50. Today, the shares are worth about $245,000 each. That's a return of more than 2,100,000%, and you might think Buffett would be extremely proud of his investment.

Image source: The Motley Fool.

However, Buffett has referred to his purchase of Berkshire Hathaway, which was nothing more than a struggling textile business at the time, as his worst investment ever.

Buffett had no desire to take over Berkshire Hathaway initially. He was ready to sell all of his shares back to the company and move on, when management unilaterally lowered the price it would pay for the shares. That move infuriated Buffett, who proceeded to amass a controlling stake in the company and fired the manager who had refused to honor his deal.

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Specifically, It was a"bad investment" because by Buffett's own estimates, if he had simply sold his Berkshire Hathaway stock and started buying insurance companies, as he eventually ended up doing, he would have made an additional $200 billion in profit for himself and his shareholders over the years.

2. Warren Buffett isn't the only one buying Berkshire's stocks

Buffett is one of the most famous stock-pickers of all time, and rightly so. Most of Berkshire Hathaway's stock investments can be directly attributed to Buffett, and many have done exceptionally well.

However, over the past six years, it hasn't just been Buffett calling the shots. Investment managers Todd Combs and Ted Weschler were hired in 2010 and 2011, respectively, to help make Berkshire's investment decisions and provide other expertise. Each year, the money the two have to invest grows, and the pair has made some pretty smart investments. For example, it was Combs and Weschler who bought shares of DirecTV, which AT&T (T) subsequently acquired, giving Berkshire a $3 billion profit. More recently, the pair was also responsible for initiating Berkshire's Apple (AAPL) investment, which has since grown tremendously in size.

3. Berkshire has a cash hoard of $86 billion but won't pay a dividend

As of the most recent quarterly report, Berkshire Hathaway had approximately $86 billion in cash on its balance sheet. Unlike most companies you hear about with gigantic cash hoards, most of Berkshire's cash is right here in the United States and could be put to use quickly, without nasty tax consequences.

To be fair, Buffett likes to keep at least $20 billion in cash at all times as a sort of "emergency fund." In addition, Buffett revealed after the $86 billion figure was published that Berkshire invested several billion in additional Apple stock in 2017. So the actual usable amount is closer to $60 billion.

Still, that's quite a stockpile of cash. Buffett's first priority with Berkshire's money is to make sure the capital needs of its businesses are met, but even then, there's usually a lot of leftover capital. Next, he'll search for acquisitions -- both bolt-on and standalone. If he can't find any that look attractive, he'll consider buying back Berkshire stock if and only if he considers it to be trading at a substantial discount to intrinsic value. If none of these things apply, Buffett is completely happy adding to his cash hoard and waiting for opportunities, which is how the massive stockpile of cash accumulated in the first place.

4. Berkshire Hathaway has 63 subsidiary companies, and you probably use some of their products

As of this writing, Berkshire Hathaway has 63 subsidiaries, most of which are fully owned (Kraft Heinz is an exception). And most of Berkshire's business are not operated under the company's brand name. In fact, its real estate brokerage operation, Berkshire Hathaway HomeServices, and Berkshire Hathaway Automotive, which resulted from a 2015 acquisition, represent the first time Berkshire has used its brand name for non-insurance businesses.

However, many of Berkshire's subsidiaries are well-known businesses. Geico auto insurance is one big example, covering more than 20 million motor vehicles. In addition, Berkshire Hathaway is the parent company of (just to name a few):

 

  • Fruit of the Loom
  • Duracell
  • Clayton Homes
  • Oriental Trading Company
  • Pampered Chef
  • Helzberg Diamonds
  • Dairy Queen
  • Brooks running shoes
  • Benjamin Moore paints

5. There are two classes of Berkshire Hathaway stock

If Buffett had his way, he probably would have never split Berkshire Hathaway's stock at all. However, as the price of Berkshire stock grew, there was an increasing possibility that investment companies would start selling off fractional pieces of Berkshire shares to smaller investors, undoubtedly attaching high fees to the price.

To prevent investors from being taken advantage of, Buffett decided to create a second class of Berkshire stock, the Class B shares, or "baby Bs."

One Class A, or original, Berkshire Hathaway share trades for more than $245,000 as I write. Clearly, these are out of reach for most retail investors. However, the Class B shares have 1/1,500th the equity of the Class A shares and currently trade for just under $164, making them the choice of most people who invest in Berkshire.

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Matthew Frankel owns shares of AT&T; and Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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