{"id":54407,"date":"2021-11-05T13:22:00","date_gmt":"2021-11-05T17:22:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=54407"},"modified":"2021-11-17T10:38:01","modified_gmt":"2021-11-17T14:38:01","slug":"berkshire-hathaway-investment-strategy","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/berkshire-hathaway-investment-strategy\/","title":{"rendered":"Tenets of Berkshire Hathaway&#8217;s Investment Strategy"},"content":{"rendered":"\n<p>What is Berkshire Hathaway\u2019s investment strategy? Can the company perpetually maintain its impressive rate of <a href=\"https:\/\/www.shortform.com\/blog\/how-to-find-the-rate-of-return\/\">return on investments<\/a>?<\/p>\n\n\n\n<p>Berkshire Hathaway\u2019s investment strategy involves using the cash collected from the conglomerate\u2019s insurance subsidiaries and investing it in other businesses at a much higher rate of return. The strategy has helped the company to grow to be as large as it is today. However, even Charlie Munger notes that it will be difficult to maintain the company\u2019s historical returns because it is harder to find underpriced investments when you have billions than when you have a few million.<\/p>\n\n\n\n<p>Read on to discover more about Berkshire Hathaway\u2019s investment strategy.<\/p>\n\n\n\n<!--more-->\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Berkshire Hathaway\u2019s Strategy<\/strong><\/h2>\n\n\n\n<p>Despite its giant size, <strong>Berkshire Hathaway\u2019s investment strategy is relatively simple<\/strong>:<\/p>\n\n\n\n<ol class=\"wp-block-list\"><li>Use insurance companies to generate \u201cfloat,\u201d or cash collected from insurance premiums before claims have to be paid.<\/li><li>Use this float to invest in businesses at a much higher rate of return than has to be paid out.<\/li><\/ol>\n\n\n\n<p>In essence, if you can take in money at 3% and invest it in things that grow at 13%, and you can do this for 50 years, you can grow to be very large, as Berkshire Hathaway has.<\/p>\n\n\n\n<p>Warren Buffett and Charlie Munger are famously hands-off in the management of companies they acquire. They decentralize all the <a href=\"https:\/\/www.shortform.com\/blog\/methods-of-decision-making-crucial-conversations\/\">decision-making<\/a> to the owned companies, trusting that the company managers are in the best position to make technical decisions for their companies. In this way, they recognize their circle of competence\u2014they\u2019re good at spotting businesses to invest in, but they know they\u2019re not the best to run them. (Shortform note: For a detailed look at Berkshire Hathaway\u2019s management style and its investment model, <a href=\"https:\/\/www.shortform.com\/app\/book\/the-outsiders-eight-unconventional-ceos\/chapter-8\">read our guide to <em>The Outsiders<\/em><\/a>.)<\/p>\n\n\n\n<p>Compared to other public companies, <strong>Berkshire Hathaway has the advantage of being very patient, long-term planners<\/strong> who don\u2019t mind lumpy results in the short-term and don\u2019t care about pleasing Wall Street. When the market is unfriendly, Berkshire is willing to underwrite less insurance and avoid doing deals. Then, when the market flips, Buffett and Munger can swoop in and take advantage of great deals.<\/p>\n\n\n\n<p>However, Munger notes that the impressive historical returns created by Berkshire Hathaway\u2019s investment strategy will be hard to match as it grows. It\u2019s much harder to find underpriced, low-competition investments when you have $10 billion than when you have $10 million.&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What is Berkshire Hathaway\u2019s investment strategy? Can the company perpetually maintain its impressive rate of return on investments? Berkshire Hathaway\u2019s investment strategy involves using the cash collected from the conglomerate\u2019s insurance subsidiaries and investing it in other businesses at a much higher rate of return. The strategy has helped the company to grow to be as large as it is today. However, even Charlie Munger notes that it will be difficult to maintain the company\u2019s historical returns because it is harder to find underpriced investments when you have billions than when you have a few million. Read on to discover<\/p>\n","protected":false},"author":10,"featured_media":35396,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[45,79,14],"tags":[533],"class_list":["post-54407","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-entrepreneurship","category-management","tag-poor-charlies-almanack","","tg-column-two"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.3 (Yoast SEO v24.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Tenets of Berkshire Hathaway&#039;s Investment Strategy - Shortform Books<\/title>\n<meta name=\"description\" content=\"What&#039;s Berkshire Hathaway\u2019s investment strategy? 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