Berkshire Hathaway Is Really a Financial Powerhouse in Disguise. Here's What That Means for Investors.
Yahoo Finance ·
When you step back and look at the big picture, Berkshire Hathaway ( BRKA +1.41% ) ( BRKB +1.61% ) is an industrial conglomerate. It has investments in hundreds of companies, including those it owns outright and public companies in which it holds stock, like Coca-Cola ( KO +3.51% ) and American Express ( AXP +1.32% ) . In fact, many on Wall Street watch the company's investment decisions to glean ideas. But when you dig into Berkshire Hathaway's story, you'll find that it is a financial stock. And that's because the company is built on top of its insurance operations. Here's why that's so important. Berkshire Hathaway exists in its current form because of Warren Buffett. The now-retired former CEO's investment skills were so impressive that he earned the nickname the Oracle of Omaha. While he was definitely a great investor, his most impressive realization was probably that he could invest the float from insurance companies . The float arises because insurance companies collect premiums up front and pay out on claims in the future. In between, insurance companies can invest that cash. Most insurance companies focus on bonds, but Buffett chose to be more aggressive. Other companies have recognized the strength of this model, including Markel ( MKL +3.29% ) and Brookfield Corporation ( BN +1.54% ) . Each is attempting to mimic the success of Buffett and Berkshire Hathaway. That said, there's more to Berkshire Hathaway's magic than just being an investment-led insurance business.
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