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When it comes to investing, there are few names as legendary as Warren Buffett. And it’s no surprise that his company, Berkshire Hathaway, is part of a select group of stocks that have generated an incredible 100,000% return for investors.
In this ninth installment of our series on companies with astounding returns, we take a closer look at Berkshire Hathaway and the strategies that have made it a powerhouse in the investment world. From Buffett’s humble beginnings to his genius moves in the insurance and consumer goods industries, there’s a lot we can learn from this investment legend.
But first, let’s dive into what exactly makes Berkshire Hathaway stand out in the world of investing.
The Power of Float
One of the key factors in Berkshire Hathaway’s success is the “float,” or premium payments, from its insurance business. This unique model allows the company to collect money upfront and put it to work in other businesses while delaying the payout of insurance benefits.
According to Buffett, “getting his hands on float is not the end, but the beginning of the process.” And it’s clear that he has utilized this strategy to great success. In 1970, Berkshire’s float was $39 million. In 2023, it had grown to a staggering $169 billion.
Buffett’s love for the insurance industry is evident in Berkshire Hathaway’s extensive portfolio, which includes well-known names like GEICO, National Indemnity Company, and General Re. This strategic investment in insurance has been a major contributor to the company’s growth and success.
The Snowball Effect
In his best-selling biography, “The Snowball: Warren Buffett and the Business of Life,” Buffett’s investment philosophy is described as a snowball rolling down a hill, growing in size and wealth over time. And this analogy couldn’t be more fitting for Berkshire Hathaway’s investment approach.
Through a combination of smart reinvestment of profits and strategic acquisitions, Buffett has created a “snowball effect” that has resulted in immense wealth for both himself and Berkshire Hathaway shareholders. Just take a look at his investments in Coca-Cola (KO) and Apple (AAPL), which have grown exponentially over the years and continue to be major players in the company’s portfolio.
Diversification is Key
Another key to Berkshire Hathaway’s success is Buffett’s belief in the importance of diversification. While insurance is the company’s bread and butter, Buffett has also invested in a wide range of other businesses from furniture makers to candy companies. This diversification has allowed Berkshire Hathaway to weather economic downturns and remain profitable in both good and bad times.
And it’s not just about investing in different industries, but also in companies with strong brands, disciplined cost structures, and reliable dividends. Buffett’s investments in Coca-Cola, Apple, and American Express (AXP) are all prime examples of this approach paying off in the long run.
What’s in it for You?
So, what can you take away from Berkshire Hathaway’s success? For starters, the power of float in the insurance industry is something that can be applied to your own investment strategy. Additionally, diversifying your investments and choosing strong, established brands with a track record of success may also prove to be wise choices.
Ultimately, learning from Buffett’s strategies and incorporating them into your own investment approach could lead to long-term success and potentially even achieving the coveted 100,000% return.
The Bottom Line
Berkshire Hathaway’s inclusion in the 100,000% return club is no surprise, given Buffett’s reputation as a savvy investor and his strategic approach to building wealth. From the power of float to the snowball effect and the importance of diversification, there is much to be learned from the success of this legendary company.
So, take some cues from the Oracle of Omaha himself and consider incorporating these strategies into your own investments. Who knows, you may just end up joining the 100,000% return club as well.