The Oracle of Omaha announced this past week that he’ll be stepping down as CEO of Berkshire Hathaway at the end of the year, a role he’s held for the last 60 years. Over the decades, Warren Buffet has grown Berkshire from what was once just a cotton textiles company that also made rayon suits and synthetic curtains in 1965 to a $1.16 trillion conglomerate spanning many industries that represent a cross-section of the U.S. economy.
After gaining control of Berkshire in 1965, one of Buffet’s first significant moves was to purchase National Indemnity, which would be the first of many insurance company acquisitions. He then gradually divested from the textile industry, cashing out the assets to focus on more profitable ventures that ultimately led to a staggering 3,787,464% return, compounding 19.8% annually, from 1965 to 2022. Compare this to the S&P 500’s 24,708% return during the same period.
No doubt at the core of Berkshire’s success is its insurance operations, and the “float” that’s produced, which is basically the cash generated by property and casualty insurance premiums. Since the money collected doesn't need to be paid out immediately as claims, Buffet can invest the funds to buy undervalued stocks and even entire companies. Imagine the compounding upside of the profits generated when claims fall far below premiums over many years. So when you combine Berkshire’s economic engine—fueled by pixie dust known as float—with the following factors over many decades, you can’t help but outperform…by a lot.
Value investing philosophy
Like one of UVstocks.io’s key metrics, Buffett looks at the intrinsic value of companies; he buys undervalued businesses with solid fundamentals and dependable management . Compound this approach for 60 years.
Diversification across sectors
Any good investing strategy starts with diversification. Berkshire’s evolution as a company epitomizes diversification in every sense, expanding from textiles in the early years into not only insurance but utilities, energy, transportation, manufacturing, retail, and other industries. Buffet essentially grew Berkshire into a microcosm of America.
Patient capital allocation
When stocks appear overvalued, Buffet exemplifies unmatched discipline and non-conformity, always knowing when to keep a war chest of cash reserves (to the tune of nearly $330 billion) that stands ready for deployment as undervalued opportunities surface. He’s greedy when all others are afraid, and he’s afraid when everyone else is greedy.
Focus on companies with economic moats
Buffett looks for businesses with real competitive advantages—or what he calls “moats.” At UVstocks.io, we encourage looking at companies with strong pricing power where it’s expensive to switch away from their products, especially in a climate where the chances of a recession continue to rise.
"The most important thing to me is figuring out how big a moat there is around the business. What I love, of course, is a big castle and a big moat with piranhas and crocodiles." — Warren Buffet
P.S. I'm sharing some investment information, but it's important to remember that what I'm providing is for informational purposes only and should not be construed as financial advice.
Happy Investing,
John
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