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.
Why Investors Should Rethink Traditional Income Strategies
Traditional longer-terms bonds are no longer as effective—so which additional income strategies should investors be considering?
Why Investors Should Rethink Traditional Income Strategies
Humans are creatures of habit. We all have daily routines, whether it’s walking the same lunchtime route, watching a familiar TV show, or cooking the same meal over and over again. Once we develop a pattern, it can take a drastic change to convince us to rethink our approach.
One such shake-up to ingrained investment habits is the changing landscape of income investing.
In today’s infographic from New York Life Investments, we explain why traditional long-term bonds may not be as effective as they were in the past, and which additional income strategies investors can consider.
The Status Quo
For years, investors have relied on traditional longer-term bonds as the centerpiece in an income portfolio. These debt instruments usually pay out interest to investors on a predetermined schedule, providing a steady income stream investment. Historically, they have also been subject to less volatility than equities.
The typical bond portfolio is diversified, much like the Bloomberg Barclay’s U.S. Aggregate Index. Here’s how the sectors are broken down in the index:
Unfortunately, this income strategy has been less effective in recent years. Over the last decade, core bond duration has increased by 1.5 years while yields have decreased by almost 2%. Essentially, interest rate volatility has increased—but investors are less compensated for the risk.
In light of low rates and higher expected market volatility, it’s critical that investors explore other income solutions. Luckily, there are many lesser-known asset classes for investors to consider.
Additional Income Strategies: An Investor’s Choice
When investors decide how to re-allocate, they can keep these objectives in mind:
- Preservation of principal (risk level)
- Pursuit of capital (growth potential)
- Perseverance in markets (long-term objectives)
Which additional income strategies can they explore?
Taxable Municipal Bonds
Issued by state and local governments, the yield of taxable munis has historically been higher than that of other sectors. Taxable munis also have a strong credit rating—over 76% of U.S. municipal bonds outstanding are A+ rated or better.
Insured Municipal Bonds
Investors can get additional downside protection with insured municipal bonds, which are guaranteed to pay interest and principal back by private insurers. They have historically performed similar to munis while capturing less of the “downside”, often providing an attractive risk-adjusted return for income investors.
Short-duration, High-yield Bonds
Bonds with a shorter duration and higher yield can be a lower volatility approach to achieving the same income investing goals.
Yield and Risk in Bonds (July 1, 2014 – June 30, 2019):
|Bond Type||Yield||Standard Deviation (annualized)||Yield per Unit of Risk|
|U.S. Aggregate Bonds||2.49||2.94||0.85|
|High Yield Bonds||6.05||5.60||1.08|
|Low-duration, High-yield bonds||5.00||3.90||1.28|
Short duration funds have lower interest rate risk, and can offer attractive yield per unit of risk.
Equities can also play a role in an income focused portfolio. Investors should look for established companies that are achieving:
- Growth in free cash flow
- Stable or growing dividends
- Share buybacks or debt reduction
Over the last 40+ years, the annual compound return of stocks with growing dividends have outperformed dividend cutters on the S&P 500 by more than 4%.
Preparing for Your Future
Maximizing the benefit from new income opportunities can take time. For this reason, it’s important to consider potential portfolio changes now, so that these strategies can play out in the lead up to retirement years.
It may be tempting to stick with the status quo—both in daily routines and investment strategies—but those who proactively adjust their approach will be able to maximize their potential.
How Equities Can Reduce Longevity Risk
With life expectancies increasing, will you outlive your savings? Learn how allocating more of your portfolio to equities may reduce longevity risk.
Will You Outlive Your Savings?
The desire to live longer — and outrun death — is ingrained in the human spirit. The first emperor of China, Qin Shi Huang, may have even drank mercury in his quest for immortality.
Over time, advice for living longer has become more practical: eat well, get regular exercise, seek medical advice. However, as life expectancies increase, many individuals will struggle to save enough for their lengthy retirement years.
Today’s infographic comes from New York Life Investments, and it uncovers how holding a stronger equity weighting in your portfolio may help you save enough funds for your lifespan.
Longer Life Expectancies
Around the world, more people are living longer.
|Year||Life Expectancy at Birth, World|
Despite this, many people underestimate how long they’ll live. Why?
- They compare to older relatives.
Approximately 25% of variation in lifespan is a product of ancestry, but it’s not the only factor that matters. Gender, lifestyle, exercise, diet, and even socioeconomic status also have a large impact. Even more importantly, breakthroughs in healthcare and technology have contributed to longer life expectancies over the last century.
- They refer to life expectancy at birth.
This is the most commonly quoted statistic. However, life expectancies rise as individuals age. This is because they have survived many potential causes of untimely death — including higher mortality risks often associated with childhood.
Amid the longer lifespans and inaccurate predictions, a problem is brewing.
Currently, 35% of U.S. households do not participate in any retirement savings plan. Among those who do, the median household only has $1,100 in its retirement account.
Enter longevity risk: many investors are facing the possibility that they will outlive their retirement savings.
So, what’s the solution? One strategy lies in the composition of an investor’s portfolio.
The Case for a Stronger Equity Weighting
One of the most important decisions an investor will make is their asset allocation.
As a guide, many individuals have referred to the “100-age” rule. For example, a 40-year-old would hold 60% in stocks while an 80-year-old would hold 20% in stocks.
As life expectancies rise and time horizons lengthen, a more aggressive portfolio has become increasingly important. Today, professionals suggest a rule closer to 110-age or 120-age.
There are many reasons why investors should consider holding a strong equity weighting.
- Equities Have Strong Long-Term Performance
Equities deliver much higher returns than other asset classes over time. Not only do they outpace inflation by a wide margin, many also pay dividends that boost performance when reinvested.
- Small Yearly Withdrawals Limit Risk
Upon retirement, an investor usually withdraws only a small percentage of their portfolio each year. This limits the downside risk of equities, even in bear markets.
- Earning Potential Can Balance Portfolio Risk
Some healthy seniors are choosing to work in retirement to stay active. This means they have more earning potential, and are better equipped to recoup any losses their portfolio may experience.
- Time Horizons Extend Beyond Lifespan
Many individuals, particularly affluent investors, want to pass on their wealth to their loved ones upon their death. Given the longer time horizon, the portfolio is better equipped to ride out risk and maximize returns through equities.
Higher Risk, Higher Potential Reward
Holding equities can be an exercise in psychological discipline. An investor must be able to ride out the ups and downs in the stock market.
If they can, there’s a good chance they will be rewarded. By allocating more of their portfolio to equities, investors greatly increase the odds of retiring whenever they want — with funds that will last their entire lifetime.
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