Berkshire Hathway Company’s Portfolio Essay
Berkshire Hathway is a holding company that began its operations in 1888 as a manufacturing company. It was started by a Chinese business man known as Horatio Hathaway. To a large extent, the company is involved in insurance business through its subsidiaries. It is, however, also involved in other types of businesses. Over the years, the company has managed to grow its portfolio by actively reinvesting insurance premiums. Presently, Berkshire Hathway has stocks in several companies that are publicly or privately owned. The company is managed by Warren Buffet, the chairman and Chief Executive Officer.
Reasons for the Success of Berkshire Hathway
The success of Berkshire Hathway is largely due to the decision made by Warren Buffet to shift the company’s focus from textile to insurance. Although there are many risks associated with the insurance business, premiums provide the capital necessary for expansion. Through investments in stocks and bonds, Berkshire Hathway has been able to improve its financial ability while ensuring that it is liquid enough to meet claims by clients.
The success of the company can also be attributed to its ability to process claims faster. Among other things, fast processing of claims helps to increase the confidence of clients in the ability of the company to deliver on its promises. As a consequence, Berkshire Hathway’s public image has improved tremendously. In addition, the company is able to attract new customers, besides managing to retain existing ones.
The company also has strict policies designed to guarantee the safety of premiums. Despite the fact that insurance business forms the bulk of Berkshire Hathway’s portfolio, the company has also invested in other sectors of the economy including the utilities and energy sector as well as the finance and services sectors. Notwithstanding this, the insurance business forms the bulk of what Berkshire Hathway does.
Types of Companies that are Not in Berkshire Hathway Portfolio and Why
There are some specific companies that, for one reason or another, are not in Berkshire Hathway portfolio. For clarity, the companies may be placed in various categories. The first category includes insurance companies that have active investment portfolios. Considering that these companies have interests that are similar to those of Berkshire Hathway, a conflict of interest is bound to arise. Consequently, these companies do not see a reason to invest through Berkshire Hathway.
The second category includes companies where managers are actively involved in the allocation of capital. Through optimal allocation of available capital, these companies ensure that business operations are conducted profitably. Investing under Berkshire Hathway is also perceived by some companies to be quite expensive. Since the greatest focus for managers of these companies is to maximize profits and minimize costs, they tend to avoid any form of involvement with Berkshire Hathway. The third and final category of companies that are not in Berkshire Hathway portfolio includes those that care less about dividends. Rather than giving dividends to shareholders, these companies are mainly interested in growing of their capital base.
As explained in this paper, Berkshire Hathway is a successful holding company whose growth over the years can be associated to its approach to business. While a number of companies have invested under Berkshire Hathway, there are some that have refused to do so because of the high cost involved among other reasons.