Berkshire Hathaway is usually categorized by analysts as a property & casualty insurance company. It is actually an incredibly interesting, diverse, and successful holding company made up of 10 insurance companies and 66 non-insurance businesses. These diverse and well managed businesses include See’s Candies, NetJets, Flight Safety Safety International, Borsheim’s Jewery, Fruit of the Loom, GEICO Auto Insurance, Benjamin Moore & Co., Dairy Queen, Clayton Homes, and Johns Manville. (See complete list of Berkshire Hathaway businesses.) Berkshire Hathaway also has an investment portfolio valued in excess of $75B.
In 2007, Berkshire Hathaway’s annual revenues totaled $118B. To put their businesses in perspective, insurance premiums were $31.8B while sales and services revenue from the non-insurance businesses was $58.2B. So calling Berkshire an insurance company is not very accurate, but insurance is one of its core businesses.
At the end of 2007, assets for the various Berkshire insurance companies included $39.8B in cash and $86.8B in equities and fixed maturity instruments. These assets include reserves for anticipated covered losses. For the non-insurance businesses, cash and fixed maturity instruments totaled $8.8B. Together, these assets give Berkshire the ability to internally finance its operations. It provides the cash to acquire new businesses. This cash also gives Berkshire the ability to add substantial positions to its investment portfolio.
The breadth of Berkshire’s business and investment holdings make it difficult for analysts to perform cash flow analysis and to estimate earnings. As you can see from the attached file, the Value Line assessment differs from that of Morningstar. (Morningstar appears to be more on the mark although they don’t do a good job explaining their discounted cash flow analysis.)
Warren Buffet and Charlie Munger have managed Berkshire Hathaway form the beginning in 1964. Integrity, honesty, and business acumen have been the hallmarks of their stewardship over the past 43 years. They have set the gold standard for corporate openness and transparency. Their results are unmatched. Share prices have compounded at rate of 21.1% between 1964-2007.  The sheer size of Berkshire Hathaway today will probably prevent it from achieving this high rate of return in the future. Nonetheless, Berkshire shareholders can expect to do well.
Warren Buffet’s annual letters to shareholders can be found here. They should be mandatory reading for every investor.
Morningstar rates Berkshire Hathaway five-stars with a fair market value of $5,100 (for the class B shares, BRK.B). Current price as of this posting is $3,914. Manifest Investing estimates projected average return of 17.5%. Here is a completed stock selection guide for Berkshire Hathaway.
Note: Berkshire Hathaway has two classes of shares. The “B” share ($3,914) is valued at 1/30 of the “A” share ($117,290). Berkshire Hathaway has never paid a dividend or authorized a stock split, so the 21.1% compound annual growth is reflected in the high price of the stock.
Berkshire Hathaway is an excellent core holding. We should consider purchasing purchasing one of the “B” shares with our available cash.