Berkshire Hathaway

Berkshire Hathaway is the company run by Warren Buffett. Known as the Oracle of Omaha, Buffett holds more than a quarter of Berkshire Hathaway stock.

Berkshire Hathaway is one of the largest public companies in the United States.  Berkshire owns more than 70 firms and has stakes in more than a dozen others.

Berkshire Hathaway is composed of a variety of businesses in industries that include: insurance, utilities, apparel, food, publishing, building materials, jewelry, railroads and furniture retailers.

Berkshire's core insurance subsidiaries include National Indemnity, Berkshire Reinsurance, GEICO Corporation, and reinsurance giant General Re.

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General Information
Websitehttp://www.berkshirehathaway.com
TypeInsurance Company
Founded
Ownership
CountryUSA
Contact Information
Address
Omaha, NE 68131
Phone402-346-1400
Fax402-346-3375

Information & Articles about Berkshire Hathaway

The Wall Street Journal recently published an interview (see the video below) with entrepreneur and Dallas Mavericks owner Mark Cuban.

The interview is interesting for a number of reasons.  Cuban talks about investing his own money and he offers some suggestions for regular, non high net worth investors. 

In a nutshell, Cuban strongly believes that the “buy and hold” approach to investing is a worthless strategy.

Buy and hold is a tenet of conventional investing wisdom that advocates steadfastly holding onto one’s investments through all manner of market volatility.  Warren Buffett is a buy and hold investor as his preferred holding period for the securities in the Berkshire Hathaway portfolio is “forever.” 

The reality for most investors is that market volatility makes buy and hold investing very difficult.  It’s extremely difficult to weather the emotional stress that results from the huge market drops (think 50 percent in 2008) that seem to be occurring with greater frequency. 

Cuban advocates keeping the majority of one’s money in cash.  His opinion is that this approach: 

  1. Allows investors to be opportunistic and have plenty of “dry powder” to pounce on extremely attractive buying opportunities that surface as a result of market volatility. 
  2. Provides protection against the possibility of permanent loss of capital (again, think of those who reacted and booked losses in 2008). 
  3. Last and not least, allows an investor to sleep well at night. 

I would tend to agree that points 2 and 3 make some sense for the average retail investor.  

However, I think that the first point is more relevant to investors like Cuban who have time, resources, business skills, and quite honestly, deal flow that enable opportunistic investment decisions. 

The basic risk of the “cash + opportunistic investing” approach advocated by Cuban is that the average investor acts on the cash part but fails to take action on the opportunistic investing part. 

Pure cash is not a good long-term position for people who need to fund their own retirements. 

An alternative to the Cuban strategy is an approach that provides exposure to the potential upside of the market while also providing downside protection (a “floor”).  In other words, have some ability to grow the portfolio when the market grows, but put protections in place that prevent the meaningful losses that can occur in our volatile world—call it a sleep at night strategy that also allows potential for growth. 

For the average investor, variable annuities and fixed indexed annuities fit this “sleep at night + growth” description as well or better than any other financial product.     

 

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Bloomberg reports that Warrenn Buffett is shortening the duration on Berkshire Hathaway's fixed income holdings.

Twenty one percent of Berkshire's bond holdings are short duration and due in less than one year.  This represents a 3 percent increase from eighteen percent on March 31 of this year, and a 5 percent increase relative to the second quarter of 2009.

Shorter duration fixed income instruments are less vulnerable to interest rate risk.  In other words, shorter duration bonds are affected less than long-term bonds when interest rates rise.

The moves by Berkshire are seen by some as an indication that Buffett views rising interest rates and inflation as a near-term possibility.

This view is reinforced by the August 2009 New York Times op-ed piece written by Buffett.  In this piece, Buffett expresses concern about the potential inflationary effects of chronic deficit spending by the federal government.

Source: Bloomberg

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If gold prices and Warren Buffett’s investing activities are any indication, the near-term could prove difficult for investors.

Warren Buffett was selling more stocks than he was buying earlier this summer, and Berkshire Hathaway’s stock purchases fell to the lowest level in five years. 

Buffett biographer Alice Schroeder thinks that Buffett is actually starting to worry.

Meanwhile, gold recently reached an 18 month high—exceeding $1,000 per ounce.

In light of these indicators, here are some considerations for investors and existing or would-be annuity owners:

  • Further capital market volatility could be around the corner.  Sequence of returns risk should be a consideration for anyone approaching or in retirement.
  • Inflation is a very real possibility.  Inflation risk and protection should be front and center for anyone considering an annuity—particularly fixed annuities.
  • As discussed in a recent post, all forms of fixed receipts or income are at risk in an inflationary environment.
  • The U.S. dollar is in a precarious position.  Non dollar-denominated investments are important, and it might be a good time to take that European vacation.
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