Berkshire Hathaway

Berkshire Hathaway {{nyse|BRKa}} is a company headquartered in Omaha, Nebraska, USA, that oversees and manages a number of subsidiary companies. The Companys' business activities include underwriting of property and casualty insurance, candy production and sales at retail, newspaper publishing, retailing of home furnishings, sales of encyclopedias, sales of home cleaning units, manufacture and distribution of uniforms, retail jewelry, and manufacture, import and distribution of footwear.

Buffett's Beginning

Education:

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Woodrow Wilson High School, Washington, D.C., graduated in 1947

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Wharton School of Finance at University of Pennsylvania, 1947-1949

Related Topics:
Wharton - University of Pennsylvania

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B.S. University of Nebraska 1950

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M.S. in Economics, Columbia University' in 1951.

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Employment:

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1951-1954 Buffett-Falk & Co., Omaha - Investment Salesman

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1954-1956 Graham-Newman Corp., New York (Investment Company) - Securities Analyst

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1956-1969 Buffett Partnership, Ltd. - General Partner

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1970-Present - Berkshire Hathaway Inc - Chairman of the Board and Chief Executive Officer

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After receiving the only A+ in Benjamin Graham's security analysis class, Buffett wanted to work at Graham-Newman but was turned down. He went to work at his father's brokerage as a salesman. A stock he pushed was GEICO. Buffett picked GEICO after noticing Graham was a director and had a large position in it. Never one to buy a stock on a whim, Buffett visited GEICO's head office on a weekend to investigate further. He knocked until someone opened the door, he was led to the future president of GEICO. Buffett introduced himself as Graham's student and was given a crash course on the insurance business and what gave GEICO an enduring advantage over their competitors. Buffett was exposed to the economics of selling direct, the wonderful float GEICO produces, its low combined ratio and the likes.

Related Topics:
Benjamin Graham - Float - Combined ratio

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In 1954, Graham invited Buffett to Graham-Newman. There, he worked closely with Graham and Walter Schloss. Graham was a tough man to work for, he was adamant that a stock provides a wide margin of safety after weighting the tradeoff between its price and intrinsic worth. Graham's demand that a stock be worth more than its price made sense to Buffett but it also made him question whether the criteria were too stringent, causing them to miss out on some big winners that had more qualitative values.

Related Topics:
Walter Schloss - Margin of safety - Intrinsic worth

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After two years, Buffett returned to Omaha and started his first partnership out of his bedroom. He would adhere closely to Graham's investment approach and compensation structure. The partnership was named Buffett Partnership Limited (BPL). BPL made consistent 30%+ gains year-over-year between 1956 to 1969. His partnership employed a three-prong approach:

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• Generals: undervalued securities that possess margin of safety and met expected risk/return characteristics
• Arbitrages: company events that are not related to broader market changes such as mergers and acquisitions, liquidation, etc.
• Controls: build sizable holdings, ally with other shareholders or employ proxys to effect changes in companies

In 1962, BPL established a position in Berkshire Hathaway, a large manufacturing company in the declining textile industry that was selling below its working capital. Charlie Munger has remarked that using Berkshire as an investment vehicle was a mistake, Buffett and Seabury Stanton (a large shareholder and management of Berkshire at the time) differed in the buy back price by three-eights. Negotiations broke off and BPL purchased every shares in sight until it established a 49% position and installed Ken Chace as President.

Related Topics:
Working capital - Investment vehicle

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As the Go-Go year continued to roar, Buffett was strained to come up with investment ideas. In 1969, Buffett decided to liquidate his Partnership, he gave his limited partners a choice between cash or Berkshire shares (the one holding he decided to keep). Buffett redirected the cash not required to maintain the textile business to acquire private businesses and stocks of public companies. At the core of his strategy was to purchase or build insurance or reinsurance companies and use them as super margin accounts to buy equities. Berkshire chooses managers who demonstrated unwavering underwriting discipline and cost consciousness throughout their careers.

Related Topics:
Insurance - Reinsurance - Margin - Underwriting

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His purchases of entire companies with Berkshire's cash included National Indemnity from Jack Ringwalt, National Fire and Marine Insurance, Illinois National Bank and Trust from Eugene Abegg, Blue Chip Stamps, See's Candies, Buffalo News, Wesco Financials, Mutual Savings and Loans, Associated Retail Stores, etc.

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When choosing common stocks, Berkshire employs a focused strategy (large positions, few companies) with a medium to long term horizon. Stock picks from 1970s through 1980s included GEICO, Washington Post Company, Capital Cities/ABC, Ogilvy & Mather International, Interpublic Group of Companies, Knight-Ridder Newspaper, Kaiser Industries, SAFECO Corporation, Amerada Hess, Affiliated Publications, Media Generals, Times Inc., General Foods, R.J. Reynolds Industries, Beatrice, F.W. Woolworth Company, Exxon Corporation, Handy & Harman, Freddic Mac, Coca-Cola Companies, etc. Arbitrage positions included Arcata Corporation.

Related Topics:
Ogilvy & Mather - Interpublic - Knight-Ridder - Kaiser Industries - SAFECO - Amerada Hess - Affiliated Publications - Media Generals - Times - General Foods - R.J. Reynolds - Beatrice - Woolworth - Exxon - Handy & Harman - Freddic Mac - Arcata

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