Monday, November 24, 2014 7:19:11 AM
By Motley Fool, November 23, 2014, 01:07:02 PM EDT
Click For nasdaq.com Link
A lot is said about the stocks Warren Buffett buys through Berkshire Hathaway . But Buffett wants you to see that those are starting to matter less and less to the company itself.
What Buffett wants you to know
Sections of the Berkshire Hathaway annual report are often repeated on a yearly basis. For example, in every year's report you can find a 1996 booklet Buffett wrote called "An Owner's Manual." You'll also see the six things Buffett requires of any business Berkshire Hathaway would acquire.
But one of the most fascinating things is the recent addition of a section from the 2010 letter to shareholders entitled "Intrinsic Value -- Today and Tomorrow." This has been included in the last three annual reports, with no indication that it will disappear anytime soon, suggesting it'ssomething Buffett wants to ensure individuals note.
[img]g.foolcdn.com/editorial/images/151248/buffett1_large.JPG[/img
Source: The Motley Fool.
The critical thing to see
The section details exactly how Buffett and longtime Berkshire Vice Chairman Charlie Munger gauge the true value of Berkshire Hathaway. Unsurprisingly, the first thing noted is the value of the company's investments in stocks and bonds, as well as cash equivalents held by Berkshire.
After all, Berkshire's monstrous insurance business not only makes an underwriting profit, but it also provides a float -- the difference between what it has taken in through premiums versus what it will eventually pay out -- that can be invested. At last count, that float stood at more than $77 billion.
Buffett's second point in this section was to highlight Berkshire Hathaway's large stable of noninsurance businesses, includingBurlington Northern Santa Fe railroad, Berkshire Hathaway Energy, Lubrizol, Marmon, and many more.
Yet what Buffett really wants us to see is this: "In Berkshire's early years, we focused on the investment side. During the past two decades, however, we've increasingly emphasized the development of earnings from non-insurance businesses, a practice that will continue."
This is evidenced by the following powerful example of the difference between the relative growth of Berkshire Hathaway's investments versus the earnings provided by its noninsurance businesses:
From 1990 to 2013, the per-share earnings from its noninsurance businesses grew at an average annual rate of 21.5%, while its investments rose at 13%.
That staggering difference resulted in the earnings of the noninsurance businesses standing nearly 90 times higher at the end of 2013than in 1990, versus "just" a 16 times greater value in its investments.
The key takeaway
For good reason, we are quick to watch how Buffett and Berkshire Hathaway invest in companies thatwe too can buy on the open markets.
But when we consider investing in Berkshire Hathaway itself, we must see that those investments are starting to matter less and less to not only its success, but to its true value as well.
Warren Buffett: This new technology is a "real threat"
At the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest cash-cow. Buffett's fear can be your gain. Only a few investors are embracing this new market, which experts say will be worth over $2 trillion . Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a free investor alert on the company we're calling the brains behind the technology.
TRUTH
I've never claimed to have all the answers but feel i'm beginning to corner the market in questions worthy of solutions.
Recent BRK.A News
- Perficient Stock Soars 52.9% Post-Acquisition; Luminar Declines 10% Amid Workforce Cutbacks, and Other News • IH Market News • 05/06/2024 12:09:00 PM
- Philips Stocks Soar 47% Following US Deal, Tesla Bolsters Presence in China, and More News • IH Market News • 04/29/2024 11:11:24 AM
- Paramount’s Shares Surge Following Sony and Apollo’s Joint Bid; ISS Backs Berkshire Hathaway Director Re-election, and More • IH Market News • 04/19/2024 11:31:22 AM
- Unilever Initiates Ice Cream Division Spin-Off and Announces Job Cuts; Berkshire Ramps Up Share Buyback Efforts, and More • IH Market News • 03/19/2024 11:33:10 AM
- Tesla Exits Market Top 10, Victoria’s Secret Stock Tumbles 30% on Weak Forecast • IH Market News • 03/07/2024 10:43:17 AM
- U.S. Stocks May Lack Direction Following Yesterday’s Modest Pullback • IH Market News • 02/27/2024 02:14:46 PM
- Cisco Systems Stock Drops 5% Following Restructuring Plan, Berkshire Trims Apple Stake, and Latest News • IH Market News • 02/15/2024 11:34:25 AM
- NetJets' sterling safety record at risk as Fractional threatens litigation against its Pilot Union • PR Newswire (US) • 01/26/2024 01:00:00 PM
- NetJets threatens litigation over alleged slowdown • PR Newswire (US) • 01/19/2024 10:15:00 PM
- Wall Street Highlights: Tesla Cuts Prices in Germany, Interactive Brokers Increases Revenue by 17%, and More • IH Market News • 01/17/2024 11:33:30 AM
- Wall Street Highlights: Apple Cuts iPhone Prices in China, Microsoft Launches Copilot Pro Subscription, and More • IH Market News • 01/16/2024 11:15:52 AM
- Wall Street Highlights: Mastercard’s Financial Rise, Citigroup’s $3.8 Billion Charges, and More • IH Market News • 01/11/2024 11:18:22 AM
- Wall Street Highlights: Amazon to Introduce Ads on Prime Video, JD.com Raises Salaries in 2024, and More • IH Market News • 12/28/2023 12:27:06 PM
- Batteries Plus & Duracell Ignite Children's Holiday Spirit With Annual Toys For Tots Partnership • PR Newswire (US) • 12/05/2023 03:07:00 PM
- Tuesday’s Wall Street Highlights: Teck Resources, Starbucks, Nvidia, Fisker, Home Depot, and more • IH Market News • 11/14/2023 11:35:03 AM
- Monday’s Wall Street Highlights: Boeing, Novo Nordisk, Moody’s, StoneCo, and more • IH Market News • 11/13/2023 11:45:20 AM
- BRK.B Stock: How Did Berkshire Hathaway Perform in Q3 of 2023? • Finscreener.org • 11/06/2023 10:15:00 AM
- NJASAP TO HOST WALL STREET INFORMATIONAL PICKET ON THURSDAY, SEPT. 14 • PR Newswire (US) • 09/13/2023 02:15:00 PM
- From Status Carrier to Steppingstone: NetJets Continues Freefall • PR Newswire (US) • 09/11/2023 02:00:00 PM
- Wednesday’s Wall Street Highlights: Ambarella, Alphabet, Toyota, HP Inc, Vinfast, and more • IH Market News • 08/30/2023 11:16:41 AM
- NJASAP to host informational picket on Sunday, Aug. 27 coinciding with the FedEx Tour Championship in Atlanta • PR Newswire (US) • 08/25/2023 01:30:00 PM
- Friday’s Wall Street Highlights: Applied Materials, Farfetch, Bloomin’ Brands, and More • IH Market News • 08/18/2023 11:32:37 AM
- Tuesday’s Wall Street Highlights: Delcath Systems, Getty Images, Home Depot, Berkshire Hathaway, and more • IH Market News • 08/15/2023 11:14:09 AM
- Monday’s Wall Street Highlights: Berkshire Hathaway, Tesla, BP, Yellow, UBS and more • IH Market News • 08/07/2023 11:26:29 AM
- Luxury Jewelry Brand, Aurate, Partners With Helzberg Diamonds To Launch Exclusive Collection • PR Newswire (US) • 08/04/2023 01:02:00 PM
NanoViricides Reports that the Phase I NV-387 Clinical Trial is Completed Successfully and Data Lock is Expected Soon • NNVC • May 2, 2024 10:07 AM
ILUS Files Form 10-K and Provides Shareholder Update • ILUS • May 2, 2024 8:52 AM
Avant Technologies Names New CEO Following Acquisition of Healthcare Technology and Data Integration Firm • AVAI • May 2, 2024 8:00 AM
Bantec Engaged in a Letter of Intent to Acquire a Small New Jersey Based Manufacturing Company • BANT • May 1, 2024 10:00 AM
Cannabix Technologies to Deliver Breath Logix Alcohol Screening Device to Australia • BLO • Apr 30, 2024 8:53 AM
Hydromer, Inc. Reports Preliminary Unaudited Financial Results for First Quarter 2024 • HYDI • Apr 29, 2024 9:10 AM