Investment Thesis: Berkshire Hathaway

Berkshire Hathaway Inc. (NYSE: BRK.A) is a diversified holding company with a robust, decentralized structure, highly disciplined capital allocation, and a reputation for integrity and long-term value creation. With core businesses in insurance, rail, and energy—supported by a broad portfolio of public equities and privately held subsidiaries—Berkshire offers investors stable cash flows, long-term growth potential, and recession resilience. The company's unique management model, ethical governance, and vast human capital base further reinforce its status as a premier long-term investment.

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The Berkshire Hathaway Story: From Textile Mill to Global Powerhouse

Berkshire Hathaway's transformation from a struggling textile mill into one of the world’s most admired conglomerates is a masterclass in disciplined capital allocation, long-term ownership, and ethical leadership.

Humble Beginnings and Buffett’s Takeover

Berkshire Hathaway’s roots trace back to the 19th century, with the merger of Berkshire Fine Spinning Associates and Hathaway Manufacturing in 1955. By the early 1960s, the American textile industry was in decline, leaving the company undervalued and vulnerable.

Warren Buffett, then a young investor focused on deep-value opportunities, began acquiring shares. In 1965, he took control. Realizing the textile business offered limited future returns, Buffett began redeploying capital into more attractive ventures—a decision that laid the foundation for a new kind of holding company, where investment acumen would drive long-term value.

The Birth of a Capital Allocation Machine

In the 1970s, Berkshire’s acquisition of National Indemnity introduced the concept of insurance float—premium dollars available for investment before claims are paid. This became the engine powering Berkshire’s growth. With insurance cash flows in hand, Buffett began acquiring high-quality, brand-driven businesses like See’s Candies, and later, significant stakes in moat-rich franchises such as GEICO, The Washington Post, and Capital Cities/ABC.

Scaling Through Strategic Acquisitions

From the 1990s onward, Berkshire’s pace of growth accelerated. Key milestones included:

• Full ownership of GEICO (1996) and reinsurance giant General Re (1998)
• A controlling interest in MidAmerican Energy (2000), now Berkshire Hathaway Energy
• Continued investments in global consumer giants like Coca-Cola

These moves cemented Berkshire’s reputation as a long-term compounding vehicle, with Buffett shifting toward “wonderful companies at fair prices.”

Infrastructure, Industrials, and a Broader Portfolio

The 2010s saw Berkshire step into large-scale infrastructure and industrials:

• In 2009–2010, Berkshire acquired BNSF Railway for $44 billion, gaining a durable, cash-rich logistics asset
• In 2016, it acquired Precision Castparts for $37 billion—its largest industrial acquisition to date

At the same time, Buffett cautiously expanded into tech-adjacent sectors, reflecting his evolving view on digital-era business models and cash flow durability.

Recent Developments and Succession

In the 2020s, Berkshire continued optimizing its equity portfolio and deploying capital selectively:

• 2022: Acquired Alleghany Corporation, boosted stakes in Japanese trading houses, and pushed its position in Occidental Petroleum toward 25%
• 2023: Increased ownership of Pilot Travel Centers to 80%, strengthening its footprint in North American travel infrastructure
• 2024–2025: Berkshire paused share buybacks amid elevated valuations, with cash reserves surpassing $340 billion. Buffett also completed the buyout of minority interests in Berkshire Hathaway Energy (BHE).

In 2021, Buffett publicly named Greg Abel as his successor, resolving years of speculation. By 2025, he announced his plan to step down as CEO while remaining a key shareholder and advisor, cementing a thoughtful transition plan without disrupting Berkshire’s capital strategy.

Warren Buffett’s Investment Strategy: The Philosophy That Shaped Berkshire

Following the transformation detailed in Berkshire Hathaway’s origin story, it becomes clear that the company’s evolution was no accident—it was the result of a disciplined, principled approach to investing, defined by Warren Buffett and still deeply embedded in the organization today.

Buffett didn’t just acquire companies; he built a philosophy around capital allocation, patience, and quality that continues to drive how Berkshire operates and grows. Understanding this strategy is key to understanding why Berkshire looks the way it does now—and why it remains one of the most respected businesses in the world.

A Time-Tested Philosophy: Quality, Discipline, and Compounding

Warren Buffett’s investment strategy is grounded in timeless principles that favor quality over quantity. While he began his career focused on deep value—buying companies trading below their liquidation value, he later evolved toward acquiring wonderful businesses at fair prices and holding them indefinitely.

Key characteristics of Berkshire’s investment approach include:

• Durable competitive advantages ("economic moats") that protect earnings power over time
• Strong, consistent cash flows and high returns on capital
• Capable, shareholder-aligned management
• Valuation discipline, avoiding overpaying even for great businesses
• Long holding periods, allowing compound returns and tax efficiency
• Internal compounding, favoring businesses that can reinvest earnings at high returns rather than distribute capital unnecessarily

This philosophy has guided Berkshire’s capital allocation for decades and remains core to its identity, whether acquiring private businesses or public stocks.

Think Like an Owner

Rather than treating stocks as pieces of paper to be traded, Buffett approaches every investment with the mindset of a business owner. He buys with the intention of holding forever, which allows capital to compound without the drag of constant turnover or taxes.

That mindset also informs how he runs Berkshire’s wholly owned subsidiaries. Managers are treated as partners—not subordinates—and are given autonomy to operate their businesses with minimal interference. As long as they uphold Berkshire’s values and perform responsibly, they are free to lead as they see fit.

Circle of Competence and Patience

Buffett is famously cautious about stepping outside his "circle of competence"—the industries and business models he deeply understands. If a business is too complex or unpredictable, he simply passes. This disciplined selectivity is one of the reasons Berkshire has avoided many high-profile investment blow-ups.

Patience is another cornerstone of the strategy. Buffett is never in a rush to deploy capital. He’s known to wait months—or years—for the right opportunity. That restraint ensures Berkshire doesn’t chase returns or compromise its principles under market pressure.

Avoiding Leverage and Embracing Simplicity

Buffett’s distaste for excessive leverage is well-known. Berkshire avoids unnecessary debt, especially at the parent-company level, and favors businesses that can fund their own growth. This conservative posture protects shareholders during downturns and provides dry powder for buying opportunities when others are forced to sell.

In parallel, Buffett avoids financial engineering, opaque structures, or trends he doesn’t understand. This simplicity has helped Berkshire stay true to its mission even as the financial world has grown more complex.

Lasting Impact on Berkshire’s DNA

Although Warren Buffett has gradually delegated responsibilities to leaders like Greg Abel and portfolio managers Todd Combs and Ted Weschler, the strategic foundation he built remains firmly in place. The same principles—value, discipline, autonomy, integrity, and long-term thinking—still guide how the company invests and operates.

As you’ll see in the next section, Berkshire’s current business profile is not a random collection of assets. It’s a carefully built ecosystem of high-quality businesses and investments, all selected and nurtured according to Buffett’s enduring philosophy.

Business Profile and Core Operations

Berkshire Hathaway, headquartered in Omaha, Nebraska, and incorporated in Delaware, is one of the most diversified and resilient holding companies in the world. Its business model spans across numerous sectors of the economy, driven by two primary engines: wholly owned operating subsidiaries and a highly concentrated public equity portfolio.

Berkshire Hathaway: The Compounding Machine

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Berkshire Hathaway is more than just a Warren Buffett story—it’s a masterclass in long-term value investing. In this audio edition, we explore what makes the conglomerate tick, its portfolio moves, and why it still matters today.

🎙️ Don’t have time to read? Catch the Berkshire breakdown on the go.

Wholly Owned Operating Businesses

Berkshire wholly owns and operates a broad mix of high-quality businesses. These subsidiaries generate consistent cash flows across different economic cycles and operate in distinct industries.

Insurance (Primary and Reinsurance)

Insurance is the foundation of Berkshire Hathaway’s operations and a key source of capital. Through subsidiaries such as GEICO, General Re, and Berkshire Hathaway Reinsurance Group, the company collects premiums upfront and invests the "float" (premiums held before claims are paid), often at no cost or even a profit.

This insurance float—totaling approximately $171 billion by the end of 2024—gives Berkshire an enduring advantage by supplying low-cost or even negative-cost capital to deploy into investments.

Freight Rail: BNSF Railway

BNSF Railway is a critical asset in the North American supply chain. As one of the largest freight railroads in the U.S., BNSF transports everything from agricultural products and coal to consumer goods and intermodal containers. Its scale, network efficiency, and stable demand make it a reliable source of long-term earnings and capital reinvestment opportunities.

Utilities and Energy

Berkshire Hathaway’s utility and energy interests are primarily held through Berkshire Hathaway Energy (BHE), a majority-owned subsidiary that operates regulated utility and pipeline businesses across the U.S., Canada, and the UK. BHE provides stable, recurring cash flows and plays a key role in Berkshire’s long-term strategy, especially around infrastructure and energy transition. The company has invested heavily in renewable power, transmission networks, and safety-focused operations, making it both a dependable earnings engine and a forward-looking platform for sustainable growth.

→ See the dedicated “Berkshire Hathaway Energy” section for a full breakdown of operations, clean energy shift, and financial highlights.

Manufacturing, Retailing, and Services

Berkshire owns dozens of companies across various sectors, providing exposure to manufacturing, retail, housing, and services. Some of the most notable brands include Duracell (batteries), See’s Candies (premium chocolates), and Fruit of the Loom (apparel).

These businesses operate independently with minimal interference from corporate headquarters, following Berkshire’s decentralized model that emphasizes autonomy and long-term performance.

Equity Investment Portfolio

In addition to its wholly owned subsidiaries, Berkshire Hathaway maintains a highly concentrated portfolio of publicly traded stocks, managed by Warren Buffett and his investment team. This equity portfolio serves as a second engine of long-term value creation, generating consistent income through dividends and offering capital appreciation over time.

As of 2024, the portfolio remains heavily concentrated in a small group of high-conviction holdings, with the top 10 positions accounting for nearly 90% of total equity assets. True to Buffett’s philosophy of buying businesses “as if he were going to own them forever,” Berkshire typically takes large, long-term positions in companies with wide moats, strong brands, and steady free cash flows.

Key Holdings (2024)

• Apple Inc. (AAPL) remains Berkshire’s largest position by far, representing over 25% of the equity portfolio. The investment continues to deliver billions in annual dividends and is viewed by Buffett as a consumer brand with unmatched customer loyalty.
• American Express (AXP) and Bank of America (BAC) make up the next largest positions, reflecting Buffett’s confidence in durable financial institutions with strong customer relationships and reliable capital returns.
• Other major holdings include Coca-Cola (KO), a legacy dividend play held since the 1980s; Chevron (CVX) and Occidental Petroleum (OXY), offering exposure to energy and infrastructure; and Moody’s (MCO), a long-standing position in financial data and analytics.
• Rounding out the top 10 are Kraft Heinz (KHC), Chubb (CB), and DaVita (DVA), offering exposure to consumer staples, insurance, and healthcare, respectively.

While technically minority stakes, these holdings reflect owner-like thinking and long-term alignment. The portfolio is not managed for short-term gains but as a permanent capital base where Berkshire can participate in the growth and profitability of industry leaders without needing to fully acquire them.

Flagship Consumer Subsidiaries

While Berkshire Hathaway owns a wide range of operating businesses, a few stand out for their scale, public visibility, and direct impact on everyday consumers. This section focuses on three flagship subsidiaries—Berkshire Hathaway Energy (BHE), GEICO, and Borsheims—each representing a different sector but collectively reflecting the company’s long-term value creation strategy, consumer reach, and operational excellence.

Berkshire Hathaway Energy (BHE)

Berkshire Hathaway Energy (BHE) stands as a prime example of Berkshire’s long-term investment philosophy: large, essential infrastructure; predictable cash flows; and reinvestment for future growth. As of September 2024, BHE had $140 billion in assets, $26 billion in revenue, and $4.2 billion in adjusted earnings to common shares.

Nationwide Energy Reach and Customer Impact

BHE owns and operates regulated utility and energy businesses in the United States, Canada, and the United Kingdom. Its companies include:

• PacifiCorp, MidAmerican Energy, and NV Energy (U.S.)
• Northern Powergrid (UK) and AltaLink (Canada)
• Supporting entities like BHE Pipeline Group, BHE Renewables, and BHE Transmission

It serves 9.3 million customers and oversees a network of:

• 213,200 miles of electric transmission and distribution
• 49,500 miles of natural gas pipelines
• 37,000 MW of total power generation capacity

This massive footprint makes BHE a critical force in delivering reliable and sustainable energy across multiple regions.

A Decade-Spanning Shift Toward Renewables

BHE’s power generation mix has evolved dramatically since 2005. Back then, coal made up 71% of owned and purchased power. As of 2024, that figure has dropped to 22%, while wind energy now accounts for 30%, solar for 6%, and other noncarbon sources like hydro and geothermal contribute another 7%.

Looking ahead, BHE projects its noncarbon power share will exceed 60% by 2030, further reducing reliance on fossil fuels. This shift is backed by over $40.6 billion invested in renewable generation and storage to date.

📈 Key Insight: BHE’s energy mix transformation reflects a real, measurable transition—reducing coal from 71% to 22% in under two decades, with wind and solar growing to nearly 40% combined.

Diverse Revenue and Earnings Streams

BHE’s revenue model is geographically and operationally diversified, minimizing regulatory risk:

• Energy revenue reached $21 billion for the LTM ended September 2024, with contributions from Nevada (20%), Iowa (14%), Utah (14%), and the UK/Canada.
• On the earnings side, pipeline and utility operations remain dominant, led by:
  • BHE Pipeline Group (28%)
  • MidAmerican Funding (22%)
  • PacifiCorp (16%)

Approximately 80% of adjusted earnings come from regulated, investment-grade subsidiaries, while the rest comes from contracted renewable assets, such as Cove Point and BHE Renewables.

Culture of Safety, Compliance, and Customer Service

With 23,800 employees and an OSHA incident rate of just 0.52, BHE fosters a strong safety culture. Its pipeline business has been ranked #1 in customer service for 19 consecutive years — a testament to its operational discipline and customer-first mindset.

GEICO: Low-Cost Car Insurance for Millions

GEICO (Government Employees Insurance Company) is one of America’s largest and most trusted auto insurers. Buffett has long recommended it for personal savings, estimating that nearly 40% of U.S. drivers could reduce their premiums by switching to GEICO. With its direct-to-consumer model, low operating costs, and wide underwriting coverage, GEICO consistently offers competitive rates without compromising service.

Borsheims: Exceptional Jewelry at Lower Prices
Borsheims, a single-location fine jewelry retailer based in Omaha, is another Buffett-endorsed Berkshire gem. Thanks to its massive volume and low-cost operations, Borsheims can offer luxury jewelry, watches, and giftware at 15–20% lower prices than typical competitors. The company even ships curated selections to long-distance customers, allowing shoppers to experience the brand’s quality and value without visiting in person.

Competitive Moat and Peer Comparison

Berkshire Hathaway occupies a rarefied place among global conglomerates and asset allocators. While it shares certain characteristics with peers such as Brookfield Corporation, Markel Group, and Fairfax Financial, Berkshire’s unmatched scale, disciplined capital allocation, and conservative financial philosophy set it apart in both structure and long-term shareholder value creation.

Positioning Among Peers

Although no company precisely mirrors Berkshire’s model, the following peers are commonly cited for their thematic or strategic similarities:

• Brookfield Corporation (Canada)
  Brookfield is a global alternative asset manager specializing in infrastructure, real estate, and private equity. With a market capitalization of approximately $65 billion (2024), it operates a more complex, fee-based model and emphasizes scale and recurring management income, but uses more leverage and financial engineering than Berkshire.
• Markel Group (United States)
  Often referred to as a “Baby Berkshire,” Markel combines specialty insurance underwriting with a growing portfolio of private businesses through its Markel Ventures arm. Valued at around $17 billion, Markel shares Berkshire’s decentralized culture and long-term mindset, though it operates on a much smaller scale.
• Fairfax Financial (Canada)
  With a market cap of roughly $13 billion, Fairfax blends global insurance with deep-value investing. Known for its contrarian approach and international exposure, Fairfax is more volatile and opportunistic, often engaging in bold bets that differ from Berkshire’s conservative, quality-first investment style.

Moat Characteristics: How Berkshire Stands Apart

Several structural and financial advantages underpin Berkshire Hathaway’s enduring competitive moat:

• Massive Insurance Float
  As of 2024, Berkshire commands $171 billion in insurance float—capital generated from premiums that it can invest before paying claims. This float acts as a low-cost, long-duration funding source. While both Markel and Fairfax generate float as well, their volumes are far smaller and subject to greater underwriting volatility.
• Decentralized Operating Model
  Berkshire empowers over 60 subsidiaries to run independently, trusting local leadership to operate with minimal interference. While Markel follows a similar philosophy, Brookfield centralizes more functions due to its asset management structure.
• Extraordinary Liquidity and Optionality
  With more than $167 billion in cash and equivalents as of 2024, Berkshire has the flexibility to act aggressively during market dislocations—a luxury few peers can match. This liquidity enhances its ability to fund large acquisitions, support subsidiaries, or repurchase shares when undervalued.
• Global Brand and Ethical Reputation
  Berkshire is globally recognized as a model of long-term stewardship and shareholder alignment. Brookfield holds strong institutional credibility, but Markel and Fairfax operate in more niche or regionally known segments.
• Proven Capital Allocation Track Record
  Berkshire’s book value per share has compounded at over 20% annually for decades—a result of disciplined reinvestment and a long-term ownership mindset. Markel’s track record is solid (approximately 13% CAGR), while Brookfield’s returns have been higher in recent years, but with more leverage and risk.

Revenue Scale: Berkshire’s Operational Lead

The revenue gap between Berkshire and its peers further illustrates its unparalleled scale and operating breadth. As shown in the chart below, Berkshire Hathaway consistently generates 3–5x more revenue than its closest competitor:

Revenue Comparison ($B), 2018–2024

Key Insights:

• Berkshire Hathaway grew from $247.8 billion in 2018 to $371.4 billion in 2024, with post-pandemic acceleration driven by its core operations in insurance, freight rail, energy, and consumer-facing businesses.
• Brookfield Corporation increased its top line from $55.0 billion to $83.1 billion, reflecting global growth in infrastructure and renewable energy.
• Fairfax Financial more than doubled revenue from $21.4 billion to $55.8 billion, benefiting from acquisitions and international underwriting gains.
• Markel Group grew steadily from $6.6 billion to $16.6 billion, reflecting its expanding insurance and ventures portfolios, though still far below Berkshire’s scale.

This trajectory highlights Berkshire’s ability to expand earnings across economic cycles while maintaining balance sheet strength and operational diversity.

Long-Term Total Shareholder Returns

Over the last decade, Berkshire Hathaway has delivered approximately 10–11% CAGR in total shareholder returns, driven by operating earnings growth, prudent investing, and periodic share buybacks.

• Brookfield has slightly outperformed on a TSR basis (12–14% CAGR) due to its real asset exposure and favorable market cycles, though with much greater volatility.
• Markel has provided stable returns in the 9–10% CAGR range, aligning with its disciplined underwriting and investing style.
• Fairfax, with a TSR around 5–6% CAGR, has experienced more erratic performance due to its contrarian bets and macro exposure.

Unique Decentralized Structure: Autonomy with Accountability

One of the defining traits of Berkshire Hathaway—and a core pillar of its long-term success—is its highly decentralized management model. In contrast to most large corporations, which rely on centralized control and uniform processes, Berkshire takes the opposite approach: it empowers its subsidiaries to operate independently, trusting local leaders to make the right decisions for their specific markets.

Operational Independence

Each of Berkshire’s more than 60 operating businesses is managed independently, with no central HR, marketing, legal, or finance departments dictating policies or procedures from Omaha. The CEOs of subsidiaries have full authority over their operations, including strategic decisions, pricing, product development, staffing, and capital reinvestment—so long as they act with integrity and uphold Berkshire’s broader principles.

This level of autonomy is rare in a company of Berkshire’s scale, but it works because Buffett and his team are extremely selective about the businesses they acquire and the people they trust to run them. Once a business becomes part of the Berkshire family, it’s expected to operate as if it were a stand-alone company, with Berkshire providing support only when necessary.

Centralized Capital Allocation and Strategic Oversight

While day-to-day operations are decentralized, major capital allocation and strategic oversight are tightly centralized within a small, experienced leadership team:

• Warren Buffett, Chairman and CEO
• Greg Abel, Vice Chairman of Non-Insurance Operations
• Ajit Jain, Vice Chairman of Insurance Operations

This team is responsible for:

• Deploying capital across the Berkshire ecosystem based on return potential, risk, and intrinsic value
• Managing the public equity portfolio and steering major investment decisions with long-term compounding in mind
• Selecting and evaluating CEOs for each business unit—focusing on integrity, competence, and a passion for their company

Their role is not to micromanage but to ensure that capital flows to where it’s most productive, and that the people in charge of Berkshire’s operating companies are both capable and trustworthy.

Why This Model Works

This structure offers several strategic advantages:

• Low Overhead: With few centralized functions, Berkshire avoids bloated bureaucracy and cost inefficiencies.
• Agility and Accountability: Local leaders make decisions faster and are directly accountable for results, fostering a strong ownership mindset.
• Talent Magnet: Entrepreneurs and operators are drawn to Berkshire’s hands-off, trust-based model, making it an attractive acquirer of high-quality businesses.
• Long-Term Thinking: With no pressure to meet quarterly earnings targets, subsidiaries can focus on sustainable growth and value creation.

As Warren Buffett famously wrote in a shareholder letter: “Our trust is in people, not in process.” That trust-based culture allows Berkshire to scale without sacrificing performance, while still giving its subsidiaries the breathing room to thrive.

Financial Strength and Performance

Berkshire’s financial performance continues to reflect its economic resilience and strategic discipline:

• 2023 Total Revenue: $364.5 billion (+5.9% YoY)
• Operating Earnings: $37.4 billion (+21% YoY)
• Cash and Equivalents: Over $167 billion

These figures demonstrate the company’s strong free cash flow generation and ample liquidity, key advantages that give Berkshire the ability to act swiftly during market downturns or periods of dislocation.

Revenue Overview: Berkshire Hathaway's Expanding Earnings Power (2014–2024)

Berkshire Hathaway has demonstrated consistent revenue growth over the past decade, showcasing the strength of its diversified business model and strategic discipline. With operations spanning insurance, energy, logistics, manufacturing, and consumer goods, the company continues to generate stable, scalable income even during economic uncertainty.

Annual Revenue Growth (2014–2024)

From $195 billion in 2014 to a record $371 billion in 2024, Berkshire Hathaway’s revenue has nearly doubled in 10 years. The growth trend reflects a combination of organic business expansion, disciplined capital allocation, and the strategic reinvestment of retained earnings.

• Notable growth surges occurred post-2020, as the company rebounded from pandemic-related slowdowns.
• 2023 marked the largest year-over-year revenue jump, from $302 billion to $364 billion, driven by strong operating performance across key business units.
• 2024 sustained that momentum, with a moderate increase to $371 billion, reinforcing Berkshire’s long-term growth trajectory.

Revenue by Segment: Diversified Income Streams

Berkshire Hathaway’s earnings power is rooted in a highly diversified operating structure, enabling resilience across market cycles.

Key segment trends (2018–2024):

• Industrial, Service & Consumer Products is the top revenue contributor, reaching $117 billion in 2024, powered by manufacturing, retail, and service subsidiaries.
• Insurance revenue expanded steadily, from $63 billion in 2018 to $105 billion in 2024, underscoring its importance not just as an earnings source but also as a provider of low-cost investment float.
• Logistics & Distribution, including key businesses like McLane Company, peaked at $104 billion in 2023, with a slight decline to $99 billion in 2024.
• Berkshire Hathaway Energy and BNSF (railroad) consistently contributed $20–26 billion annually, highlighting their dependable performance and infrastructure advantage.

This segmental balance ensures that no single industry dominates Berkshire’s revenue profile, allowing it to weather market volatility and invest opportunistically.

Revenue by Geography: U.S.-Anchored with Global Reach

Berkshire Hathaway remains primarily a U.S.-centric business, but has gradually expanded its global footprint.

Geographic revenue trends (2018–2024):

• The United States consistently accounts for over 80% of total revenue, with $302.4 billion generated in 2024 alone.
• Revenue from EME (Europe, Middle East, Emerging Markets) grew from $30.4 billion in 2018 to $42.9 billion in 2024, reflecting expanding global demand.
• Global/Other international markets also saw growth, from $8.9 billion in 2018 to $26.2 billion in 2024, though still a relatively small portion of total earnings.

While the company’s international exposure is growing, its domestic strength remains the foundation, offering regulatory stability, customer familiarity, and operating leverage in the U.S. economy.

Profitability Margins: A Look at Berkshire Hathaway’s Operating and Net Margins (2018–2024)

Berkshire Hathaway’s profitability profile reflects its disciplined operations and the unique nature of its investment-driven earnings. Two key metrics—operating margin and net margin—offer valuable insights into the company’s core performance and bottom-line volatility.

Stable Operating Margins Reflect Business Efficiency

From 2018 to 2024, Berkshire Hathaway’s operating margin has remained relatively consistent, ranging between 12.2% and 16.0%. This narrow band of fluctuation underscores the firm’s strong operating discipline across its diverse portfolio, from insurance and energy to railroads and manufacturing. The 2024 operating margin of 16.0% marks a multi-year high, suggesting enhanced efficiency and operating leverage in recent periods.

Volatile Net Margins Driven by Accounting and Market Swings

In contrast, net margins have experienced significant year-over-year swings—from a low of 1.6% in 2018 to highs above 32% in 2019 and 2021, and even dropping to -7.5% in 2022. This volatility is not due to weak fundamentals but rather stems from accounting rules that require Berkshire to report unrealized gains and losses on its equity portfolio in its net income. For a company with massive stock holdings—like Apple, American Express, and Coca-Cola—market swings can distort reported profits even when core operations remain healthy.

• 2018's low net margin (1.6%) reflects the impact of new accounting rules (ASC 321), which started requiring mark-to-market treatment of equity investments.
• 2022’s negative net margin (-7.5%) was primarily due to broad declines in equity markets, leading to unrealized losses on Berkshire’s investment holdings.

These swings in net profit do not reflect underlying operating health—a point Warren Buffett frequently emphasizes in his shareholder letters. Investors evaluating Berkshire should focus more on operating earnings and book value growth rather than GAAP net income alone.

Capital Allocation and Value Creation: How Berkshire Hathaway Builds Long-Term Value

One of the key reasons behind Berkshire Hathaway’s long-term success is its disciplined and flexible capital allocation strategy. Unlike many companies that follow strict plans or focus on short-term earnings, Berkshire invests wherever it sees the best long-term return for shareholders.

Four Ways Berkshire Allocates Capital

Berkshire doesn’t rely on just one method to grow value. Instead, it rotates between four major strategies:

1. Reinvesting in its own businesses to support growth and innovation
2. Acquiring new companies outright when the price is right
3. Buying stocks of public companies with strong long-term potential
4. Repurchasing its own shares when they trade below intrinsic value

Why This Approach Works

This flexible model lets Berkshire act quickly when opportunities arise—whether in private businesses, the stock market, or even its own shares. When no good deals are available, it conserves cash or returns it to shareholders through buybacks, which increase each shareholder’s ownership and long-term value.

The Power of the Insurance Float

Perhaps the most distinctive advantage Berkshire brings to capital allocation is its use of insurance float—the capital generated from insurance premiums that can be invested before claims are paid out. At the end of 2024, Berkshire’s float stood at approximately $169 billion.

What makes this float particularly valuable is that it has historically come at little to no cost—or even at a profit—because Berkshire’s insurance operations often produce underwriting gains. This effectively gives the company access to low-cost, long-duration capital, which it can use to make long-term investments across its ecosystem.

Instead of relying on debt or equity issuance, Berkshire uses this float to invest in stocks, acquire businesses, or expand subsidiaries—amplifying returns without taking on unnecessary financial risk.

Why It Matters for Investors

This multi-channel, value-driven capital allocation strategy has several key implications for shareholders:

• Buybacks are value-accretive, not routine. Berkshire repurchases its own shares only when they are trading at a discount to intrinsic value, ensuring long-term investors benefit from increased ownership and improved per-share metrics.
• Cash is a strategic asset, not a drag. Holding over $150 billion in cash and equivalents gives Berkshire the flexibility to act decisively when markets dislocate or when high-return opportunities arise.
• Compounding is maximized by minimizing taxes and transaction costs. The company rarely sells its core holdings, and it pays no dividend, allowing capital to stay invested and working for shareholders.
• Risk is managed through optionality and discipline. Unlike most corporations that feel pressure to deploy cash quickly, Berkshire can afford to wait, often for years, until the right opportunity comes along.

Decentralized Culture and Leadership

At the heart of Berkshire Hathaway’s enduring success is a powerful combination of ethical governance, decentralized management, and a deep respect for human capital. While its operating businesses span industries and geographies, they share a unifying culture of trust, accountability, and long-term thinking—a framework set in motion by Warren Buffett and sustained by the leaders he’s empowered.

Governance with Strategic Oversight

Berkshire’s governance model balances operational independence with centralized strategic control. Each subsidiary operates autonomously, making its own decisions on hiring, compensation, product development, and customer service. Yet, high-level oversight remains with a small, trusted team—Chairman Warren Buffett, Vice Chairmen Greg Abel and Ajit Jain, and CFO Marc Hamburg—who collectively shape capital allocation, leadership development, and adherence to Berkshire’s values.

The company’s Code of Business Conduct and Ethics sets group-wide expectations around transparency, legal compliance, asset protection, and ethical behavior. This light-touch, high-trust model is backed by a board that focuses on long-term succession, stability, and value preservation, rather than quarterly performance pressures.

Executive compensation reflects this ethos. Buffett famously draws a $100,000 salary, has refused bonuses and stock grants for decades, and reimburses Berkshire for personal expenses. Abel and Jain earned $21 million each in 2024, based solely on role and internal performance, not stock metrics. Berkshire does not offer equity-based incentives, reinforcing a culture that prioritizes intrinsic value creation over short-term stock price fluctuations.

Berkshire’s compensation structure is designed to reward performance without encouraging short-term risk-taking. As shown below, even top executives receive consistent, non-equity-based compensation, without reliance on stock options or variable bonuses:

Summary Compensation Table (2022–2024)
Total pay for key Berkshire executives reflects stability and discipline over market-based incentives.

In stark contrast to many public companies, Berkshire’s leadership is compensated far below industry averages relative to company size, despite strong shareholder returns. Buffett himself has consistently drawn only $100,000 in salary, while Berkshire’s total shareholder return (TSR) exceeded 200% from 2020 to 2024.

Pay vs. Performance (2020–2024)
Buffett’s compensation remains modest despite Berkshire’s consistently strong TSR.

This alignment between pay and long-term results underscores Berkshire’s commitment to shareholder-first governance and ethical stewardship.

People as a Strategic Advantage

Berkshire’s nearly 400,000 employees are the true drivers of its decentralized model. With no centralized HR department, each company manages its workforce according to its specific industry, geography, and goals. Yet across subsidiaries, several shared values prevail:

• Workplace safety is paramount, especially in operations like BNSF Railway and Berkshire Hathaway Energy.
• Fair compensation and benefits are locally competitive and often performance-based.
• Internal growth is emphasized, with many businesses offering on-the-job training and promoting from within.
• Inclusion and transparency are encouraged, with some subsidiaries advancing diversity and equity efforts even in the absence of formal ESG reporting.

Rather than viewing employees as costs to be minimized, Berkshire sees its workforce as a core enabler of long-term value. Empowered local teams make faster decisions, respond better to operational challenges, and uphold company values more effectively than a top-down bureaucracy ever could.

Risk Factors

While Berkshire Hathaway is fundamentally strong and conservatively managed, several material risks could impact its financial performance, capital allocation, or long-term prospects:

Key Person and Talent Risk

• Major capital allocation and investment decisions remain concentrated in Warren Buffett, age 94. Although Greg Abel is designated as the successor, Buffett's departure could affect investor confidence.
• Berkshire’s decentralized model requires qualified managers across subsidiaries. Failure to attract or retain talent could weaken performance.

Investment Concentration Risk

• A large share of Berkshire’s equity portfolio is concentrated in a few issuers (notably Apple). A significant decline in these holdings could materially reduce shareholders’ equity and insurance subsidiary surpluses.

Cybersecurity and Technology Risk

• Increasingly sophisticated cyberattacks could result in service disruptions, data breaches, and reputational harm. While mitigations are in place, full prevention cannot be guaranteed.
• Technological disruption in core businesses could erode long-standing competitive advantages.

Macroeconomic and Market Risk

• Economic downturns, prolonged inflation, and restricted access to capital markets may hurt revenues, increase borrowing costs, and weaken operating earnings.
• Volatility in global markets may also impact the fair value of the equity portfolio.

Geopolitical and Terrorism Risk

• Armed conflicts, trade policy shifts, and terrorism could disrupt supply chains, harm physical assets, or reduce the value of investments. These risks are shared by most global businesses but can materially affect results.

Climate and Environmental Risk

• Physical damage from extreme weather events and regulatory shifts (e.g., GHG emission limits) could impact BNSF Railway, Berkshire Hathaway Energy (BHE), and insurance operations.
• Failure to comply with evolving environmental standards may result in penalties or costly system upgrades.

Regulatory and Legal Risk

• Subsidiaries across insurance, energy, and rail are subject to complex regulations. Regulatory changes could limit rate-setting, restrict dividends, or require additional capital spending.
• BHE and BNSF, in particular, face ongoing legal, environmental, and rate-related risks due to the essential nature of their infrastructure and services.

Insurance-Specific Risk

• Berkshire has a high tolerance for underwriting risk and may suffer large losses from natural disasters or catastrophic events (e.g., terrorism, wildfires, pandemics).
• Legal changes or unforeseen liabilities could inflate claims beyond pricing assumptions, particularly since some policies remain open for decades.

Long-Term Outlook: A Compounder Built for Decades

Berkshire Hathaway’s long-term outlook remains one of the most compelling in the public markets. As one of the largest and most conservatively managed conglomerates in the world, Berkshire has demonstrated an unmatched ability to scale capital without diluting return quality, even as it continues to grow into a corporate giant.

This rare combination of scale and discipline is what makes Berkshire not only resilient but also uniquely positioned to thrive across market cycles. In a landscape where many large corporations struggle to deploy capital effectively beyond a certain size, Berkshire continues to turn growing cash flows into long-term value, without compromising its principles.

Reliable, Diversified Cash Flow Engine

Berkshire generates large and consistent cash flows from a highly diversified base of businesses. Its income streams come from essential, recession-resistant sectors such as insurance, freight rail, utilities, and manufacturing. These operations throw off billions in operating earnings, which can then be redeployed into more businesses, stock investments, or share repurchases—creating a self-sustaining flywheel of reinvestment and compounding.

Unlike companies that rely heavily on cyclical trends or a single product line, Berkshire’s diversity of business models provides natural insulation against sector-specific downturns. This cash flow reliability forms the foundation for the company’s long-term investment strategy and gives it flexibility in both bull and bear markets.

Unmatched Capital Allocation Agility

At its core, Berkshire Hathaway is a capital allocation machine. Led by one of history’s most respected capital allocators, Warren Buffett, and supported by his designated successors, the firm applies a rigorous, value-oriented framework to every dollar of excess capital.

This discipline allows Berkshire to act decisively when opportunities arise—whether that means acquiring a private company, taking a strategic stake in a public firm, or repurchasing its own stock when it trades below intrinsic value. Just as importantly, the company exercises restraint during periods of market excess, never forcing investments for the sake of activity.

This patient, opportunity-driven approach is a key reason why Berkshire continues to compound value effectively over the long term, even as many large-cap peers struggle to consistently outperform the index.

A Balance Sheet Built for All Seasons

Another hallmark of Berkshire’s long-term outlook is its fortress-like balance sheet. As of the end of 2024, the company held over $167 billion in cash and equivalents, along with little reliance on debt at the parent company level. This strong liquidity profile gives Berkshire a powerful advantage: it can remain calm and opportunistic when markets panic.

During times of financial stress or economic dislocation, Berkshire is often able to step in as a buyer of last resort, acquiring assets or making deals that others can’t afford to. This financial strength is not just defensive—it’s opportunistic, enabling the company to thrive when others are merely surviving.

Enduring Commitment to Transparency and Ethics

Berkshire’s long-term strategy is supported by a culture of ethical leadership, shareholder alignment, and radical transparency. It avoids complex financial engineering, communicates candidly through annual shareholder letters, and resists the pressure to cater to short-term market expectations.

This long-term orientation and clear ethical stance help earn the trust of investors, acquisition targets, and business partners alike. In a world where investor confidence can quickly erode, Berkshire continues to stand as a symbol of stability and sound judgment.

Built to Withstand Uncertainty

The company’s decentralized model, conservative financial structure, and adaptable capital deployment approach make it well-equipped to endure—and even capitalize on—macroeconomic uncertainty, inflationary periods, geopolitical volatility, and regulatory shifts.

It is precisely this combination of resilience and agility that has allowed Berkshire to outperform over multiple decades. While others are forced to react, Berkshire can act deliberately. While others rely on financial engineering or speculative growth, Berkshire relies on cash flows, quality businesses, and long-term thinking.

Investor Takeaway: Why Berkshire Still Matters

Berkshire Hathaway is more than just an investment vehicle—it’s a business ecosystem built on sound principles, disciplined management, and long-term thinking. With operations that touch critical sectors of the economy and a management approach that empowers leaders to execute without micromanagement, it offers investors a unique mix of safety, income, and growth.

For investors seeking a low-volatility, diversified compounding machine with built-in downside protection and optionality, Berkshire Hathaway remains one of the most compelling buy-and-hold investments in the market today.

🔗 Learn more about our long-term investment philosophy at Snowball Investing.
🔗 Learn how Berkshire Hathaway supports a compounding-focused portfolio in The Essentials of Snowball Investing.

🎧 Want a quick recap or fresh investment ideas? Listen to the Snowball Investing podcast for audio summaries of all our theses.

The following data snapshots are as of 07/11/2025 from tradingview website

Key Stats

Performance

Financial Statements

Income Statement

Balance Sheet

Cash Flow

Statistics

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