It would be hard to make the case that any company has performed as well over the past half-century or so as Warren Buffett-led Berkshire Hathaway (BRK.A 1.60%) (BRK.B 1.57%). From the time Buffett took control of the company in 1964 through the end of 2016, the company's stock price has risen by a staggering 1,972,595%.
While nobody is expecting performance even close to that level over the next 53 years, including Buffett himself, there's reason to believe Berkshire is still a fantastic investment with potential to consistently beat the market over the long run.
Here are just a few of the things that could push Berkshire's profits to the next level in the coming years.
There could be good times ahead for the insurance and banking industries
Berkshire Hathaway's core business is insurance, which could benefit it greatly over the next few years if interest rates continue to rise, as it would mean more investment income on premiums held to pay claims. Also, if government regulations on the insurance industry are rolled back, as President Trump has pledged to do, it could reduce compliance costs and generally make it easier for insurers to do business.
In addition, Berkshire has several large investments in bank stocks, including Bank of America, Wells Fargo, and US Bancorp. These stocks stand to benefit tremendously from lower interest rates and looser regulations as well, which is why they've performed so well since the November election. If the administration is successful in creating the kind of growth it promised, it could mean another leg up for the financial sector.
Berkshire is finally starting to put its cash hoard to work
At the end of the first quarter of 2017, Berkshire Hathaway had a stockpile of $96.5 billion in cash and equivalents. This is the largest cash hoard the company has ever had, and many investors, myself included, have been eager to see Buffett and his team get a bit more aggressive about putting its cash to work.
To be clear, I applaud Buffett for not rushing to use Berkshire's cash. If he can't find any attractive investment opportunities, he's perfectly content with waiting until he does.
However, this is nearly $100 billion that's sitting around earning virtually no returns. That's why the recent news that Berkshire is getting more active with investments and acquisitions is music to my ears. In just the past few weeks, Berkshire invested over $300 million in STORE Capital, its first REIT, and has agreed to add Texas-based Oncor to its portfolio of utilities for $9 billion. In addition, The Wall Street Journal recently reported that Buffett has met with Sprint's chairman about a possible investment, which other sources report would be in the range of $10 billion to $20 billion.
I have full confidence in Buffett's judgement to invest in attractive opportunities, so the fact that he seems to have found a few, and is starting to put some of Berkshire's capital to work, is a great sign.
Buffett is trusting his two stock-pickers more and more
As part of his succession plan, Buffett hired two investment managers -- Todd Combs in 2010, and Ted Weschler in 2011. Both were former hedge fund managers with excellent track records.
Initially, both men started out with relatively small sums of money to invest, and the results have been quite promising so far. For example, Berkshire's successful Apple investment started out as a stake of about $1 billion that Weschler reportedly initiated in early 2016. And the pair was responsible for the company's DirecTV win, which resulted in a big payday for Berkshire when AT&T acquired the satellite giant.
Buffett has been steadily increasing the amount of money Combs and Weschler have to invest. As of Buffett's latest letter to shareholders, they now manage a total of $21 billion, far more than the $2 billion they started with.
If the early results are any indication, Berkshire's capital is in good hands. As Combs and Weschler start managing even more of Berkshire's money and eventually take over Berkshire's stock investments altogether once Buffett is no longer at the helm, it could be a positive catalyst for shareholders.