There is no question about it: Warren Buffett's conglomerate Berkshire Hathaway Inc. (NYSE:BRK-A)(NYSE:BRK-B) is a unique company -- built in the image of its idiosyncratic architect. You can't do the same thing as everyone else and expect different results, after all! Here are three things you probably didn't know about Berkshire Hathaway:
Warren Buffett once referred to Berkshire Hathaway as "the dumbest stock I ever bought" -- an error with a $200 billion opportunity cost!
In Oct. 2010, Buffett told CNBC:
The dumbest stock I ever bought was -- drum roll here -- Berkshire Hathaway...
As instead of putting that money into the textile business [Berkshire Hathaway] originally, we just started out with the insurance company, Berkshire [today's holding company] would be worth twice as much as it is now... This is $200 billion, ... [b]ecause the genius here thought he could run a textile business.
We know that Berkshire was originally a textile company, but what is the insurance company he is referring to? The answer can be found in Berkshire's 2014 shareholder letter, which provides greater context for Buffett's original blunder:
Early in 1967, I had Berkshire pay $8.6 million to buy National Indemnity Company ("NICO"), a small but promising Omaha-based insurer ... Insurance was in my sweet spot: I understood and liked the industry. Jack Ringwalt, the owner of NICO, was a longtime friend who wanted to sell to me -- me, personally. In no way was his offer intended for Berkshire. So why did I purchase NICO for Berkshire rather than for BPL [Buffett Partnership Ltd., Buffett's investment partnership]? I've had 48 years to think about that question, and I've yet to come up with a good answer. I simply made a colossal mistake.
If BPL had been the purchaser, my partners and I would have owned 100% of a fine business, destined to form the base for building the company Berkshire has become. Moreover, our growth would not have been impeded for nearly two decades by the unproductive funds imprisoned in the textile operation. Finally, our subsequent acquisitions would have been owned in their entirety by my partners and me rather than being 39%-owned by the legacy shareholders of Berkshire, to whom we had no obligation. Despite these facts staring me in the face, I opted to marry 100% of an excellent business (NICO) to a 61%-owned terrible business (Berkshire Hathaway), a decision that eventually diverted $100 billion or so from BPL partners to a collection of strangers.
Berkshire Hathaway's stock recently traded for more than a quarter of a million of dollars -- per share.
On Dec. 13, Berkshire's A shares traded above $250,000 per share for the first time. Not bad, if you consider that Buffett's original cost basis was $14.86 -- a 16,787-bagger, as it were!
(Here are three acquisitions that were instrumental in reaching that milestone.)
The total staff at Berkshire Hathaway's corporate headquarters numbers just 25 (including Warren Buffett)!
One number that has not kept pace with the growth in Berkshire's profits, or book value, or market value price: The headcount at the company's Kiewit Plaza headquarters.
In his 2015 shareholder letter, Buffett declares that "[a]t Berkshire, we, too, crave efficiency and detest bureaucracy." The corporate headquarters in Omaha, Nebraska, sets the example, with a skeleton staff of just 25, including Buffett. It is with no small amount pride that he writes:
Equally important, however, are the 24 men and women who work with me at our corporate office. This group efficiently deals with a multitude of SEC and other regulatory requirements, files a 30,400-page Federal income tax return -- that's up 6,000 pages from the prior year! -- oversees the filing of 3,530 state tax returns, responds to countless shareholder and media inquiries, gets out the annual report, prepares for the country's largest annual meeting, coordinates the Board's activities, fact-checks this letter -- and the list goes on and on.
This "almost unheard of" decentralization is integral to Berkshire's success. In fact, in codifying the "Berkshire system", vice chairman Charlie Munger identified 15 defining characteristics, including:
(3) There would be almost nothing at conglomerate headquarters except a tiny office suite containing a Chairman, a CFO, and a few assistants who mostly helped the CFO with auditing, internal control, etc.
Worldwide, Berkshire employed 361,270 people at the end of 2015, the eighth largest workforce in the S&P 500 (between IBM and Target).