Is no secret that Berkshire Hathaway, owned and operated by the world famous Warren Buffet has made an incredible number of successful investment decision over the past few decades. A single share of Berkshire Hathaway class A stock now it sells for nearly $300,000, when it initially launched at $7,100 just 28 years ago. Is clear of the company has a history of consistent gains, but there is only so much upside available, as well as lingering concerns about their future.
Porter Stansberry of Stansberry Research recently published his findings about Berkshire Hathaway and how it managed to achieve such runaway success. Is analysis is in-depth and quite detailed, but ultimately can be boiled down to a few simple observations (http://stansberryresearch.com/products/stansberry-alpha/).
First and foremost, a considerable amount of Berkshire Hathaway’s gains have come from its ability to acquire massive amounts of capital. In the early days of Berkshire Hathaway, Buffet was able to finance investments with “float”. This is the cash an insurance company has from premiums on insurance policies that have not been paid out yet. This money can be reinvested, and so long as it is properly managed there is little risk says Stansberry Research.
In the early days, Buffet was able to buy companies like National Indemnity for $8.6 million dollars. Meanwhile, the company had a “float” of 19.4 million, enabling him to roll his investment over twofold. They were many companies like this back then, many of which have now been acquired by Berkshire Hathaway.
It is much easier to get a relatively large amount of capital when you are a smaller company and it is even easier to do this with the right opportunity. This simply is not a possibility for a company that is worth more than 170 billion dollars today.
Ultimately, Stansberry has determined that the long-term financial success of Berkshire Hathaway has a lot to do with opportunity. There are only so many excellent opportunities available, and as the company, it must find greater and greater number of search opportunities in order to maintain a consistent return on investment for shareholders. The days of easy float money are gone, and Berkshire Hathaway must subsist mostly on the float it already has.
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