Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) is a truly massive operation with a $400 billion market cap. At its core, Berkshire Hathaway is an insurer that throws off a lot of cash. And while we're big fans of the cash Berkshire has produced, we're a lot more excited about what Buffett's been able to do with all that cash.
A full transcript follows the video.
This video was recorded on May 8, 2017.
Gaby Lapera: You know what we should do, we should start by talking about, how is Berkshire Hathaway doing? What did Warren Buffett have to say about his company?
Michael Douglass: Sure. Let's start one step further back: What is Berkshire Hathaway?
Lapera: Fair enough.
Douglass: At its core, Berkshire Hathaway is an insurance business. The way insurers make their money, there's two ways. They write a policy, you pay a premium, they pay out if you get into an accident. A lot of insurers lose a bit of money on the policies, but they make it back with investments. Berkshire Hathaway actually makes money on the policies and then makes more on investments. So it takes the float -- that's money that they received in premium income that they haven't paid out yet in damages -- and they invest that. Berkshire invests in two ways -- either in the stock market, and then also in wholly owned businesses. Berkshire owns a lot of brands you don't really associate with insurance, things like Brooks Running, things like Fruit of the Loom, things like BNSF railroad, Business Wire --
Lapera: All sorts of things. He's got a finger in so many pies, you don't even know about the pies.
Douglass: Legitimately. And I'm a Berkshire Hathaway shareholder. I've been reading the annual letters for a few years; I've gone twice. When I walked around the exhibition hall on Friday, I was like, I didn't realize they owned those guys, too. So it's sort of a constant thing. If you're dealing with Buffett and Berkshire, there's always something more than you're expecting.
Lapera: Definitely. Listeners who are interested in learning more about how insurance companies work, we're actually going to do a show on insurers in late May or early June, so get excited about that. I can already think of so many wonderful questions that people might have to ask. In fact, if you have a question about insurance companies, please email us at firstname.lastname@example.org , and we'll see if we can answer it on that episode. Anyway, now that I'm done pitching myself ... [laughs]
Douglass: So, to circle back to your actual question --
Lapera: Berkshire Hathaway, in general, doing pretty well. For listeners who don't know, the Berkshire Hathaway insurance businesses include Geico, General Re, which is a reinsurance business -- anything else that I'm forgetting? I think those other big two insurance businesses.
Douglass: Those are the big two. They just acquired another one, but those are the big guns in that arsenal.