Warren Buffett is an investing legend. We all know that.
But some people may be surprised to learn just how gargantuan the company the Oracle of Omaha runs really is. A lot of that is due to the businesses he owns outright, not the stocks that he buys and holds.
Berkshire Hathaway is now the 4th most valuable publicly traded firm in the United States. Let that sink in.
Only Apple, Google and Exxon Mobil are worth more. Berkshire’s market cap is slightly higher than Microsoft’s. I wonder if Buffett uses that fact as trash talk when playing bridge with his buddy Bill Gates.
To put Buffett’s influence another way, Berkshire employs more than 300,000 people as well. That’s more than Apple, Google and Microsoft … combined.
Soaring stock: The stock has been on a tear since Berkshire became more affordable to average investors following a 50-1 split for its B shares more than five years ago.
The B shares, sometimes referred to as the Baby Berkshires, are up 113% since the split — easily outpacing the 85% gain for the S&P 500.
The reason that Berkshire decided to split its stock in the first place is because of one of its acquisitions.
Berkshire Hathaway agreed to buy railroad Burlington Northern Santa Fe in late 2009 with a a mix of cash and stock.
At the time of that deal, Berkshire had never split either class of its stock. The A shares were trading above $100,000 (they’re now worth $222,000) and the B shares cost around $3,300.
In order to let mom and pop Burlington investors easily take part in the deal, Berkshire agreed to a split of the B shares. That brought the price down to just under $70 by the time the acquisition closed.
Burlington, which accounted for nearly 12% of Berkshire’s overall revenue in the first nine months of 2014, is just one of several operating units of Berkshire that gets overshadowed by Wall Street’s obsession with what stocks Berkshire buys and sells every quarter.
Hits and misses: Recent weakness in big Berkshire holdings IBM, Coca-Cola and American Express have even led to some questions about whether Buffett has lost his Midas touch.
But that’s silly.
For one, you can’t focus just on the Berkshire losers and ignore how well other big investments have done.
Wells Fargo is Berkshire’s largest stock position by far, and it had a banner 2014. So did top 10 holdings DaVita HealthCare Partners and DirecTV.
Any lingering concerns about declining stock prices in Berkshire investments should be offset by the strength the company has shown in its core insurance businesses of GEICO and General Re as well as Burlington.
There are also several well-known smaller businesses like Fruit of the Loom, Benjamin Moore, NetJets and Dairy Queen that are doing well.
And Berkshire also owns a gem of a company that many people have probably never heard of named McLane. It’s a wholesale distributor of food and groceries to big retailers and restaurant chains.
Berkshire bought McLane from Walmart in 2003 for about $1.5 billion. McLane is now the largest non-insurance company at Berkshire. It generated more than $34 billion in sales in the first three quarters of last year — nearly 25% of Berkshires overall revenue.
So Buffett can (and should) give himself a pat on the back in his soon to be released annual letter and take a well-deserved victory lap at the company’s big shareholder meeting in Omaha in May.
Berkshire Hathaway is much more than Buffett’s stock picks. It’s a financial, industrial and consumer powerhouse.
