Shares I Like: Berkshire Hathaway

  • Berkshire Hathaway and its subsidiaries are engaged in business activities such as insurance, utilities, rail freight and manufacturing
  • Making acquisitions helped it become one of the biggest companies in the world

Jonathan Mills, co-founder and portfolio manager at Metropolis Capital, which manages part of Alliance Trustit is (ATST) portfolio, explains why he invests in an American multinational conglomerate Berkshire Hathaway (US: BRK.A).

“Under the leadership of CEO Warren Buffett, Berkshire Hathaway and its subsidiaries engage in a variety of business activities, including insurance and reinsurance, utilities and energy, rail freight, manufacturing, retail and services.

“Berkshire Hathaway’s growth into one of the world’s largest companies has been entirely due to a series of sound investment decisions. It has largely been built up through acquisitions and, each time Buffett has acquired a company , it’s because he loves both the company and its management. When he makes an acquisition, he doesn’t do traditional due diligence but meets the top managers and then decides whether they are trustworthy.

“Unlike typical corporate acquirers, Buffett never contemplates replacing management. But it was always with extreme reluctance after the initial acquisition.

“For decades, Buffett has made a virtue of running businesses very differently from others. He trusts the leaders of each subsidiary to make their own decisions, giving them only the guidance they need to run their business along the lines highest ethical standards – as if they and their family will own them for the next 100 years Buffett believes companies will be run efficiently and with high ethical standards if he focuses their leaders on the importance of maintaining excellent reputation and think about their business in the very long term.

“This extreme hands-off approach has worked extraordinarily well over the years. Unlike other companies, particularly in the financial industry where short-term incentives have often led managers to make poor decisions, Berkshire Hathaway has maintained a very good reputation in the various sectors in which it operates while generating exceptional returns for shareholders.

“Berkshire Hathaway ‘A’ shares, which have never been split, trade at around $480,000 (£388,973) each. That’s a 64,000x return since Buffett bought his original stake in 1962 to $7.50 per share – an annual internal rate of return of 21% So if you had invested, say, $10,000 alongside Buffett, that would now be worth around $640 million.

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