The Warren Buffett Empire in One Giant Chart
If you look at any ranking of the world’s richest people, you will notice that most of the names derive their wealth from building individual, successful companies.
Topping today’s rich list is Jeff Bezos, who started Amazon in 1994. Further down, you see familiar names like Bill Gates (Microsoft), Amancio Ortega (Zara), Mark Zuckerberg (Facebook), Larry Ellison (Oracle), and so on.
Warren Buffett, who appears third on such a list, is completely unique in this sense. Through his holding company Berkshire Hathaway, he has bought, sold, or invested in hundreds of companies over the years, and their industries are all over the map. These investments include consumer goods companies like Coca-Cola, daily national newspapers like The Washington Post, and insurance companies like GEICO.
Buffett currently owns 36.8% of Berkshire – and at the time of publishing, Berkshire Hathaway is worth an impressive $480 billion, employing 377,000 people across many different industries.
Although Berkshire Hathaway is today associated with Buffett and his long-time partner Charlie Munger, the origins of the company actually stem from 1839.
The original company was a textile mill in Rhode Island, and by 1948 Berkshire employed 11,000 people and brought in $29.5 million in revenue (about $300 million in today’s dollars).
After Berkshire’s stock began to decline in the late 1950s, Buffett saw value in the company and started accumulating shares. By 1964, Buffett wanted out, and the company’s CEO Seabury Stanton tendered an offer to buy Buffett’s shares for $11.37, which was $0.13 less than he had promised.
This made Buffett mad, and instead of taking the offer, he opted to buy more shares. Eventually he took control of the company and fired Stanton.
The company was his, and the rest is history.
In the long-running contest of Warren Buffett vs. the market, the scoreboard isn’t even close:
|Berkshire Hathaway||S&P 500|
|Total gain (1964-2017)||2,404,748%||15,508%|
|Compound annualized gain||20.9%||9.9%|
Source: BH Annual Report. BH’s market value is after-tax, and S&P 500 is pre-tax, including dividends.
If you’re wondering how Warren Buffett developed such an impressive investing record, it’s worth seeing Part 2 of this series: Inside Buffett’s Brain.
Revenue by Business Segments
The Warren Buffett Empire is diverse, and made up of hundreds of companies in different industries.
However, segmenting by revenue does give an idea of how Berkshire makes its money:
|Revenue (Billions, 2017)||% of Total|
|Berkshire Hathaway Energy||$18.9||8%|
|Service and Retailing||$26.3||11%|
The Berkshire Portfolio
Berkshire Hathaway’s portfolio can be broken down into two categories: the companies it owns outright (or majority stakes in), and the companies it owns significant investments in.
Companies Owned by Berkshire
Berkshire Hathaway owns well-known brands ranging from Dairy Queen to Duracell. Here are all those companies listed by number of employees:
|Manufacturing||Fruit of the Loom||26,219|
|Manufacturing||The Marmon Group||12,763|
|Railroad and Utilities||BNSF Railways||41,000|
|Railroad and Utilities||Berkshire Hathaway Energy||22,773|
|Service and Retailing||McLane Company||23,859|
|Service and Retailing||NetJets||6,314|
|Service and Retailing||BH Media Group||3,719|
|Service and Retailing||See’s Candies||2,439|
|Service and Retailing||Helzberg Diamonds||2,252|
|Service and Retailing||The Buffalo News||618|
|Service and Retailing||Business Wire||486|
|Service and Retailing||Dairy Queen||464|
|n/a||Berkshire Hathaway Corporate Office||26|
Importantly, you’ll notice that there are only 26 employees in Berkshire Hathaway’s corporate office – that’s because Buffett is adamant that portfolio companies need to be well-managed in their own right, and he thinks this decentralization is a key to his success.
Here are the companies Berkshire Hathaway has significant investments in – the whole portfolio is worth nearly $200 billion:
|Company||Value (Billions)||% of Portfolio|
|Bank of America||20.0||10.5%|
|Bank of NY Mellon||3.3||1.7%|
The portfolio is pretty much a microcosm of the American economy: it features banks, airlines, consumer goods companies, and even tech behemoths like Apple.
Lastly, it’s worth noting that Buffett doesn’t stop there – his company also owns 80 auto dealerships, the second-largest real estate broker in the country (HomeServices of America), and even 32 daily newspapers.
Deals that Made the Empire
The Warren Buffett Empire wouldn’t exist without Buffett being involved in some of most famous deals in business history. Below are some of the big names Buffett has been involved with.
Buffett helped finance the Capital Cities takeover of ABC – at the time, the largest non-oil merger in history. Eventually, CapCities/ABC was sold to Disney.
Before ESPN was the household name it is today, Buffett owned a big chunk of it as an upstart sports brand in 1985, as a part of the CapCities/ABC deal.
Berkshire Hathaway and 3G Capital led a takeover of Heinz in 2013. This gave Buffett control of trusted brands like HP Sauce, Lea & Perrins, as well as the namesake brand.
Buffett delivered the newspaper as a kid, but later in his life would be the largest outside shareholder of the famous paper.
Buffett helped lead a desperate shakeup at one of Wall Street’s most famous investment banks.
After almost losing all the $358 million he had invested, Buffett called buying preferred shares in the airline one of his biggest mistakes.
Buffett started buying shares in the last 1980s, and became Gillette’s biggest shareholder. Buffett made $4.4 billion in paper profit when it sold the company to Proctor & Gamble.
Ranking Asset Classes by Historical Returns (1985-2020)
What are the best-performing investments in 2020, and how do previous years compare? This graphic shows historical returns by asset class.
Historical Returns by Asset Class (1985-2020)
Mirror, mirror, on the wall, is there one asset class to rule them all?
From stocks to bonds to alternatives, investors can choose from a wide variety of investment types. The choices can be overwhelming—leaving people to wonder if there’s one investment that consistently outperforms, or if there’s a predictable pattern of performance.
This graphic, which is inspired by and uses data from The Measure of a Plan, shows historical returns by asset class for the last 36 years.
Asset Class Returns by Year
This analysis includes assets of various types, geographies, and risk levels. It uses real total returns, meaning that they account for inflation and the reinvestment of dividends.
Here’s how the data breaks down, this time organized by asset class rather than year:
|U.S. Large Cap Stocks||U.S. Small Cap Stocks||Int'l Dev Stocks||Emerging Stocks||All U.S. Bonds||High-Yield U.S. Bonds||Int'l Bonds||Cash (T-Bill)||REIT||Gold|
*Data for 2020 is as of October 31
The top-performing asset class so far in 2020 is gold, with a return more than four times that of second-place U.S. bonds. On the other hand, real estate investment trusts (REITs) have been the worst-performing investments. Needless to say, economic shutdowns due to COVID-19 have had a devastating effect on commercial real estate.
Over time, the order is fairly random with asset classes moving up and down the ranks. For example, emerging market stocks plummeted to last place amid the global financial crisis in 2008, only to rise to the top the following year. International bonds were near the bottom of the barrel in 2017, but rose to the top during the 2018 market selloff.
There are also large swings in the returns investors can expect in any given year. While the best-performing asset class returned just 1% in 2018, it returned a whopping 71.5% in 2009.
Variation Within Asset Classes
Within individual asset classes, the range in returns can also be quite large. Here’s the minimum, maximum, and average returns for each asset class. We’ve also shown each investment’s standard deviation, which is a measure of volatility or risk.
Although emerging market stocks have seen the highest average return, they have also seen the highest standard deviation. On the flip side, T-bills have seen returns lower than inflation since 2009, but have come with the lowest risk.
Investors should factor in risk when they are looking at the return potential of an asset class.
Variety is the Spice of Portfolios
Upon reviewing the historical returns by asset class, there’s no particular investment that has consistently outperformed. Rankings have changed over time depending on a number of economic variables.
However, having a variety of asset classes can ensure you are best positioned to take advantage of tailwinds in any particular year. For instance, bonds have a low correlation with stocks and can cushion against losses during market downturns.
If your mirror could talk, it would tell you there’s no one asset class to rule them all—but a mix of asset classes may be your best chance at success.
How to Avoid Common Mistakes With Mining Stocks (Part 4: Project Quality)
Mining is a technical field that manages complex factors from geology to engineering. These details can make or break a project.
Mining is a technical field and requires a comprehension of many complex factors.
This includes everything from the characteristics of an orebody to the actual extraction method envisioned and used—and the devil is often found in these technical details.
Part 4: Evaluating Technical Risks and Project Quality
We’ve partnered with Eclipse Gold Mining on an infographic series to show you how to avoid common mistakes when evaluating and investing in mining exploration stocks.
Here is a basic introduction to some technical and project quality characteristics to consider when looking at your next mining investment.
View the three other parts of this series so far:
- Mistakes made when choosing a team
- Mistakes made with the business plan
- Mistakes with project jurisdiction
Part 4: Technical Risks and Project Quality
So what must investors evaluate when it comes to technical risks and project quality?
Let’s take a look at four different factors.
1. Grade: Reliable Hen Vs. Golden Goose
Once mining starts, studies have to be adapted to reality. A mine needs to have the flexibility and robustness to adjust pre-mine plans to the reality of execution.
A “Golden Goose” will just blunder ahead and result in failure after failure due to lack of flexibility and hoping it will one day produce a golden egg.
Many mining projects can come into operation quickly based on complex and detailed studies of a mineral deposit. However, it requires actual mining to prove these studies.
Some mining projects fail to achieve nameplate tonnes and grade once production begins. However, a team response to varying grades and conditions can still make a mine into a profitable mine or a “Reliable Hen.”
2. Money: Piggy Bank vs. Money Pit
The degree of insight into a mineral deposit and the appropriate density of data to support the understanding is what leads to a piggy bank or money pit.
Making a project decision on poor understanding of the geology and limited information leads to the money pit of just making things work.
Just like compound interest, success across many technical aspects increases revenue exponentially, but it can easily go the other way if not enough data is used to make a decision to put a project into production.
3. Environment: Responsible vs. Reckless
Not all projects are situated in an ideal landscape for mining. There are environmental and social factors to consider. A mining company that takes into account these facts has a higher chance of going into production.
Mineral deposits do not occur in convenient locations and require the disruption of the natural environment. Understanding how a mining project will impact its surroundings goes a long way to see whether the project is viable.
4. Team: Orchestra vs. One-Man Band
Mining is a complex and technical industry that relies on many skilled professionals with clear leadership, not just one person doing all the work.
Geologists, accountants, laborers, engineers, and investor relations officers are just some of the roles that a CEO or management team needs to deliver a profitable mine. A good leader will be the conductor of the varying technical teams allowing each to play their best at the right time.
Mining 101: Mining Valuation and Methods
In order to further consider a mining project’s quality, it is important to understand how the company is valued and how it plans to mine a mineral resource.
There are two ways to look at the value of a mining project:
- The Discounted Cash Flow method estimates the present value of the cash that will come from a mining project over its life.
- In-situ Resource Value is a metric that values all the metal in the ground to give an estimate of the dollar value of those resources.
The location of the ore deposit and the quantity of its grade will determine what mining method a company will choose to extract the valuable ore.
- Open-pit mining removes valuable ore that is relatively near the surface of the Earth’s crust using power trucks and shovels to move large volumes of rock. Typically, it is a lower cost mining method, meaning lower grades of ore are economic to mine.
- Underground mining occurs when the ore body is too deep to mine profitably by open-pit. In other words, the quality of the orebody is high enough to cover the costs of complex engineering underneath the Earth’s crust.
When Technicals and Quality Align
This is a brief overview of where to begin a technical look at a mining project, but typically helps to form some questions for the average investor to consider.
Everything from the characteristics of an orebody to the actual extraction method will determine whether a project can deliver a healthy return to the investor.
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