Berkshire Hathaway Business Strategies

Berkshire Hathaway Business Strategies

There is no way to address the key strategies of Berkshire Hathaway without considering the brain behind its overall success strategies – the nonagenarian, and investment giant, Warren Buffet. Berkshire Hathaway Inc. is no doubt a colossus in the business world as a result of its unmatched and vast success. The corporation’s history would, however, be incomplete without its owner, Warrant Buffet who from his intellectual fountain has piled the corporation’s ship to the astounding state it is today. On the off chance that you are a keen investor or business researcher, chances are you have come across the name “Warren Buffett” multiple times across several ranking lists of the world’s wealthiest and richest men. Specifically, Warren Buffet has appeared countless times on Forbes’ list of billionaires across the world. However, in spite of that, his name often appears amongst the selected top five. Warren is by far one of the world’s wealthiest men yet alive.

Through his brilliant strategies, Berkshire Hathaway Inc. is proud to have several top public companies’ stocks in its portfolio, the likes of Johnson & Johnson, Vis Inc., Mastercard Inc., Chevron Corp., Citigroup Inc., Occidental Petroleum, U.S. Bancorp, Aon Plc, McKesson Corp., The Kroger Co., HP Inc., Globe Life Inc., Ally Financial Inc., DaVita Inc., Bank of New York Mellon Corp., et cetera et cetera. Returning the same energy, however, Berkshire Hathaway Inc., in return owns shares in multiple top public companies such as BNSF Railway, Duracell, GEICO, Helzberg Diamonds, Lubrizol, Fruit of the Loom, Pampered Chef, FlightSafety International, Forest River, Net Jet as well as Diary Queen. Additionally, the corporation also owns equities (although, minor) with several top public firms across the world, the likes of the Coca-Cola Company with 9.3% shares, Kraft Heinz Company with a share of 26.7%, Bank of America, with 11.9% shares, Apple Inc., with a 5.57% equity, as well as American Express with 18.8% equity. In addition to this, Berkshire Hathaway Inc., also owns equity with Exxon Mobil amounting to an approximation of 4 Billion USD. In this piece, however, you would be shown the key strategies that led to the cutting-edge success of Berkshire Hathaway Inc., as well as the background history of the icon to whom the corporation’s matchless success is traced and ascribed, the brainy investor, Warrant Buffett.  

Historical Overview of Warren Buffett – The Owner of Berkshire Hathaway Inc. 

Born in the year 1930 in Omaha, Massachusetts, United States, Warren Buffett’s interest in investment, the stock market as well as the business world grew at a tender age. Warren began originally his higher education at the University of Pennsylvania, however, he later moved to the University of Nebraska, and there, he bagged his first degree in Business Administration. Stepping up in his educational career, Buffett moved on to the Colombia Business School, and there he bagged a graduate degree in economics. 

However, the business and investment career of Warren Buffett began in the 1950s when he first started as a salesman in the early years of 1950s. Nonetheless, as a result of his intense entrepreneurial desire, Warren Buffett launched an entity in the year 1956, operating under the name, Buffet Associates. Throughout the 1950s and the early years of the 1960s, Warren Buffett engaged and dived fully into the world of business and investment, exercising the professional acumen and skills gained through his educational discipline coupled with his innate desire and intellectual abilities. Within a couple of years not up to 10 years after his first establishment, Warrant Buffett emerges as the owner of Berkshire Hathaway Inc., in the year 1965.  

In the year 2006, June, Warren Buffett pronounced his intention to give out his fortune to pursue charity and philanthropic courses. This intention was however characterized by his joint partnership with Bill Gates to found a charity campaign with the tag name, Giving Pledge.     

Warren Buffet’s Investment School of Thought & Philosophy 

It is something quite common with investors, each individual having their own investing philosophy and principle that guide them in their decisions and investment choices. Warren Buffett is of course no exception in this area. The success of this investment icon and his key strategy in pushing Berkshire Hathaway Inc., into its current acclaimed status could perhaps be traced to his investment school of thought and philosophical belief. However, for the sake of brevity, this section would dive briefly into Warren’s investment philosophy and school of thought. 

Warren Buffett is among the few individuals who believe in the Benjamin Graham school of value investing that focuses more on stocks and securities whose prices are unreasonably low as a result of their intrinsic worth. This school of investment thought is counter-intuitive to the average view of the business world, however, this investment school often analyzes a firm’s fundamentals before arriving at a conclusion. 

Investors belonging to Benjamin Graham’s School of investment consistently look for stocks and securities that are unarguably underpriced and valued or are securities that even though valuable, ye are not obvious to the general public who are prospective buyers. 

However, according to Graham School of value investment, it is irrational to support the Efficient Market Hypothesis (EMH) an investment theory widely supported by average investors, which opines that it is relatively difficult for investors to thrive by buying undervalued or underpriced shares or selling shares in inflated prices in that shares and other related securities are mostly traded at their fair values. The view of the Graham School of value investment places more hope and optimism in the future increment in values of those stocks bought at underpriced values and as a result, there can have them sold at high prices resulting in a multiple increases in ROI and a concordance to the multiplying effect in economics. 

Additionally, as though belonging to Benjamin Graham’s school of value investing is not enough, Warren Buffet has over the years in his investing career portrayed himself to be an investor who’s not moved nor dazed by the market forces of demand and supply. They, however, believed that the short-run stage of every market is often characterized by voting and its long run like a weighing machine. 

Warren’s investment philosophy is based on the overall prospect of a company and its future value rather than its present worth or market value. As a result, Warren uses a long-term method in investing in a company, as his investment decision is not based on the unreasonable or worthless amount its stock is priced but rather Warren looks at the possibility of the company keeping up its value in the marketplace. 

Key Berkshire Hathaway Business Strategies 

Here are some key Berkshire Hathaway business Strategies 

Debt -to-Equity (D/E) Ratio 

One of the top strategies Warren Buffett uses in Berkshire Hathaway before sealing an investment deal with a company is to check for its debt level equating it with its equity. Here, it is more advisable that the company’s equity is greater than its liability so as to leverage the company’s growth on its equity rather than its liability. To get the D/E ratio: Total debt/Investor’s Equity  

ROE Rate: 

 Serving as one of the Berkshire Hathaway Inc leverages as utilized by Warren Buffet. Before stepping in to seal a stock deal with a selling company, Warren often checks the company’s ROE otherwise known as return on equity which is the rate at which investors earn income on their individual stocks. To get ROE: Profit /Investor’s Equity. To be more, however, it is best advisable that prospective investors should check a company’s ROE as far back as 10 years. 

Profit Margins: 

Using the selling company’s record as dated back as five years, Berkshire Hathaway compares the company’s profit margin by dividing its net income (profit)  by its net sales. To him, it does not only matter whether the company is making a profit, but also its increasing frequency in profit making. This strategy reveals that a company whose profit margin is high is no doubt operating optimally, however, the increasing frequency in the profit margin reveals the company’s management efficiency in its expense management and control.    

Company’s Nature: 

Another major key strategy Berkshire Hathaway uses is considering the nature of a company before striking a deal. Generally, Warren Buffet doesn’t patronize companies whose IPO (initial public offering) is not over 10 years and are currently underpriced, and since the Graham School of value investment he uses focuses more on companies with long shot years in that it is one of the metrics to check a company’s resilience.   

Product Differentiation: 

Another key strategy Warren Buffet utilizes and that contributes majorly to the success of Berkshire Hathaway is to strike deals with companies whose products and offerings are distinct from their competitors. Companies whose products are relatively similar to their competitors or have no distinctive products are not worth investing according to the investment giant, Warren Buffet.  

Investing in Cheap Stocks 

With this strategy in concordance with Benjamin Graham’s school of value investment, Berkshire Hathaway Inc leverage this strategy by purchasing stocks that are unarguably undervalued but with the possibility of increasing their worth in the long run.   

Conclusion 

After going through the comprehensive analysis revolving around one of the world’s wealthiest men, Warren Buffett, and his cutting-edge company, Berkshire Hathaway, his early history, his investing school of thought and philosophy as well as the key strategies he uses in piling the company into its current success state which serves as the main theme of the article, we hope you can get value from Berkshire Hathaway business strategies.