1 Thing Warren Buffett Wants You to Know About Berkshire Hathaway Inc.

Much is said about Warren Buffett and Berkshire Hathaway, but it turns out too much of the attention is put in the wrong direction.

Jul 30, 2014 at 12:06PM


Much is said about the stocks Warren Buffett buys through Berkshire Hathaway, but for people interested in buying a stake in his company, those investments are beginning to matter less and less. 

What Warren Buffett wants you to know

Every year, Berkshire Hathaway releases its Annual Report, which includes Buffett's well-known letters -- not to mention the results of the company -- and also sections that are repeated each and every year. For example, a 1996 booklet Buffett wrote called An Owner's Manual has been included in each year since then. You'll also see the six things Buffett requires of any business Berkshire Hathaway would acquire.

But one of the most fascinating things is the recent addition of the section from the 2010 Letter to Shareholders titled "Intrinsic Value -- Today and Tomorrow."

Although it may be recent, it's clearly something Buffett wants to ensure individuals see, as it has been included the last three years. And there's no indication it'll stop anytime soon.

Warren Buffett Insider Monkey

Warren Buffett. Source: Insidermonkey.com

Buffett's main focus

The section details exactly how Buffett and Charlie Munger -- the longtime vice chairman of Berkshire -- gauge the true value of Berkshire Hathaway. The first thing noted is the value of the investments in stocks, bonds, as well as cash equivalents held by Berkshire.

These investment are primarily related to Berkshire Hathaway's insurance operations and its float -- the difference between what it has taken in through premiums versus what it will eventually pay out.

At last count, that float stood at more than $77 billion. While Berkshire expects to pay out a portion of this money Berkshire in the form of insurance claims, in the meantime, the money can be invested by Buffett and his team.

Buffett's second point was to highlight that Berkshire Hathaway also has a stable of noninsurance businesses, including Burlington Northern Santa Fe, Berkshire Hathaway Energy, Lubrizol, Marmon and many, many more.

Even thought he mentioned the stocks first, those investment portfolio are clearly not his main focus:

In Berkshire's early years, we focused on the investment side. During the past two decades, however, we've increasingly emphasized the development of earnings from non-insurance businesses, a practice that will continue.

As a result, Buffett shows the power example of the difference between the relative growth of the investments of Berkshire Hathaway versus the earnings provided by its noninsurance businesses:

Source: Company Investor Relations and author calculations 

In fact, from 1990 to 2013, the per-share earnings from its noninsurance businesses have grown at an average annual rate of 21.5%, whereas its investments have grown at 13%.

And as you can see, that staggering difference resulted in the earnings of the non-insurance businesses standing nearly 90 times higher today than in 1990, versus "just" a 16 times greater value in its investments.

The key takeaway

For good reason, what stocks Buffett and Berkshire Hathaway are buying is worth watching, if you are considering buying shares of Berkshire Hathaway itself, the stock portfolio is starting to matter less and less to the company's true value.

Patrick Morris owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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