From The Closure Of The Textile Mill To The Purchase Of Suites Per Share, "What Is The Operation Of Buffett?"

99 of 100 people know that "stock god" Buffett, but only about 20 people understand Buffett controlled Berkshire Hathaway company, and few people know that the company has the highest share price in the world. In April 12, 2019, the closing price of the company has reached 31.425 Wan Meijin, equivalent to 2 million 100 thousand yuan, which is equivalent to the price of a 100 square meter flat in the second tier cities.

What made Boxill Hathaway such a high stock price?

Buy angry, eventually cigarette butt smashed hands.

In 1956, Buffett, 25 years old, founded Buffett partners, a business similar to the current private placement fund.

During this period, Buffett inherited and exerts the deep value investment philosophy of Benjamin Graham, a teacher at Columbia University (known as "the godfather of Wall Street"), that is, the "cigarette butt unit" that invested market value significantly lower than book value.

In 1962, Buffett partners began to buy textile mills on the brink of bankruptcy - Boxill Hathaway.

Buffett thought at that time that before the closure of the textile mill, some fixed assets would be disposed of, and the company would have some intention to buy back some of the shares.

However, it is unexpected that the CEO of the textile factory temporarily changed the price, and eventually announced the repurchase price lower than the previous agreed price. Although Buffett still made a good profit, the management's dishonest behavior made him very angry.

So Buffett started buying a lot of Berkshire shares and eventually controlled Berkshire at an average price of $14.86 per share, when the company had a net asset of only $22 million 887 thousand (up to December 31, 2018, Boxill Hathaway's net assets amounted to $352 billion 500 million).

In 1969, Buffett decided to dissolve the Buffett partnership company that brought him the first barrel of gold, and arranged the disbanded "funeral affairs" properly. Each investor received considerable profits.

Some turned to invest in municipal educational bonds, and some were recommended to Bill Lu'an, the founder of Sequoia Fund, while others, including Buffett himself, converted some of their earnings into Berkshire stock.

At that time, Buffett's wealth in his partnership grew to $25 million.

Timely suspension of the textile industry to become an insurance Empire

Since Buffett bought Boxill Hathaway, the winter of textile industry has come.

Before 1970, although the company's performance was often less than expected, the positive attitude of management and trade unions still gave Buffett full confidence in Berkshire.

Unfortunately, the textile industry is still facing a downward trend. In 1981, Buffett began to admit that investing in Berkshire was a mistake.

In a letter to shareholders in 1985, Buffett once again mentioned that he had taken a look at the development prospects of enterprises and ended his Berkshire textile business.

Although Buffett's 20 years' efforts and perseverance failed to save the depression of textile business, he bought the insurance company based on the cash flow generated by the early stage of textile production and made a more brilliant chapter of Berkshire.

In 1967, Buffett spent $8 million 600 thousand to acquire National Indemnity (national insurance company) and its sister company National Fire & Marine (National Fire and marine insurance company), and began buying GEICO (US Government Employees Insurance Company) shares in 1976 until 1995, holding wholly owned GEICO.

In addition, Berkshire spent $16 billion in 1998 to acquire General Re Corporation (General Re Corporation).

In Buffett's view, insurance companies are very good investment tools.

The insured pays the premiums and provides a continuous cash flow. This part of the fund is not actually owned by the insurance company, but it can be invested until a customer claims for compensation.

Because the time of the claim is uncertain, the investment objects of insurance companies tend to be liquid securities, which mainly include short term fixed income securities, long-term bonds and stocks.

Buffett bought an insurance company in essence, he bought an investment tool, which provided a continuous fund for the subsequent large-scale investment, and the cost of capital was very low, even to a negative cost.

As Buffett said in his recent letter to shareholders in 2019, "the insurance industry is the cornerstone of the company's" Woods ", providing a great value for Berkshire in a less obvious way.

The five chain of investment: Berkshire has five "Woods".

After 54 years of acquisition, investment and operation, Boxill Hathaway has grown into a large holding company which involves many industries. Its main fields include insurance and reinsurance, freight and railway pportation, public utilities, energy generation and distribution business.

Unlike general holding companies, Berkshire did not set up specialized functional departments (such as sales, procurement, law, human resources, etc.) to centralize the management of subsidiaries.

Although Berkshire and its subsidiaries have around 389 thousand employees around the world, the company's headquarters in Nebraska, Omaha, is "sparsely populated" (only 25 people are rumoured in the market), including Buffett and his partner Charlie Munger, CFO Markham Bo, Buffett's assistant and Secretary Gladys Kaiser, investment assistant Bill Scott, and two secretaries, a receptionist, three accountants, a stockbroker, a financial manager and insurance manager.

Headquarters only participates in major asset allocation, investment activities, as well as the appointment and removal of major management and other work and decisions, and rarely participates in the day-to-day operation of its companies, because Buffett firmly believes that the companies he owns and invest in will operate better under the management of former executives.

At such a compact Berkshire headquarters "soil", there are five "Woods" that Buffett is familiar with.

Holding insurance companies

? non insurance holding companies

Companies that share control

Stock investment portfolio

US Treasury bonds, cash and various fixed income instruments.

1. holding insurance company (insurance and reinsurance company)

Since the acquisition of two local insurance companies in Omaha in 1967, Berkshire has been working hard in the insurance industry.

To date, its insurance business has expanded to the world, employing 49 thousand employees. It has the second largest Motors Insurance Corporation GEICO (Gai Ke) and the world's largest Property Casualty Reinsurance Company General Re Corporation (General Re Corporation).

Berkshire's insurance business is mainly divided into three parts:

By the end of 2018, insurance and other assets totals $532 billion 307 million, accounting for 75.21% of Berkshire's total assets. It is the cornerstone of Berkshire's "forest".

From 1970 to the end of 2018, the float provided by the company's insurance business increased from US $39 million to US $123 billion.

To put it simply, we can regard Berkshire as an insurance group, using its insurance float to form a merger and acquisition leverage, and share a series of companies to achieve the current total assets of up to US $about 700000000000.

2. non insurance companies holding shares (shareholding ratio 80%-100%)

As a whole, the holding of non insurance companies in 2018 amounted to $184 billion 650 million, an increase of 5.6% compared to 2017, a pre tax profit of $21 billion 640 million, an increase of 9.5% over 2017.

This income accounts for 75% of Berkshire's total revenue, and is the most valuable "forest" in the "forest" system.

Among them, BNSF is the largest railway operator in North America and has a 51500 km network of operations, covering 28 states and 2 provinces in Canada.

BNSF delivers more than 5 million containers and trailers a year. It is also recognized as the world's largest rail multimodal pport carrier.

BHE is one of the largest power suppliers in the world. Its main business is the construction and maintenance of power generation, pmission, distribution electricity, gas pmission network and power grid project. At the same time, we vigorously develop new energy sources and create the largest two solar power projects in the United States.

McLane is one of the largest supply chain service companies in the United States. It provides comprehensive supply chain services such as grocery, food, beverage and beverage for convenience stores, hypermarkets, chain drugstores and chain restaurants in the US.

The volume of the business is huge, but the profit margin is very low and the risk is very low.

In addition, Boxill Hathaway also holds Clayton Homes, International Metalworking, Lubrizol, Marmon, Precision Castparts, Forest River, Johns Manville, and other companies in manufacturing and retail service industries.

3. companies that share control

By the end of 2018, Berkshire's 4 companies sharing control power constituted a "small grove" in the "forest".

Among them, Kraft Heinz (kraft Heinz) is a world-famous food company. Its main products include biscuits, ketchup, Kraft cheese, Maxwell coffee, Philip oil cheese, Oreo sandwich cake, chocolate and so on, and its nearly 50 brands sell more than one hundred million dollars a year in the whole world.

The company has suffered huge losses in recent years due to poor management and brand discount (a net loss of 10 billion 230 million US dollars in 2018).

Berkadia's main business is real estate loan. It is the company that Boxill Hathaway and Leucadia National (LUK) acquired in 2009 when the bankrupt commercial real estate lending giant Capmark Financial Group and its business was reorganized.

The main business of Electric Transmission Texas (Texas power pmission company) is the acquisition, construction and operation of power pmission facilities in Texas, the United States.

Pilot Flying J is a truck rest operator. It has 750 sites in the United States and Canada, covering 44 states.

The main operation items include refueling service, retail service and truck roadside rescue service.

Boxill Hathaway can share dividends from these 4 companies every year after tax: Kraft Heinz holds 26.7%, Berkadia shares 50%, Texas power pmission company holds 50%, and Pilot Flying J holds 38.6%.

In 2018, the 4 companies gave Berkshire a total of about $1 billion 300 million.

4. stock investment portfolio (shareholding ratio 1%-20%)

The "fruit forest", which is indispensable in Berkshire's "forest", refers to its stock portfolio. Assets in a portfolio usually involve 5% to 10% ownership of a company.

By the end of 2018, Berkshire's stock investment value was nearly US $173 billion, among which the top 15 stocks with the largest market value were listed below.

Among them are fast food products, banks, airlines and technology companies, most of which are well known, including apple, Coca-Cola, American Express, Goldman Sachs, Moodie, Southwest Airlines and so on.

The investment portfolio has created long-term high returns for Berkshire, making it the only insurer that can invest in capital at a cost.

Buffett's remarkable ability to invest determines that Berkshire's success is hard to replicate by other insurers.

5. US Treasury bonds, cash and various fixed income instruments.

By the end of 2018, Berkshire had us $111 billion 900 million worth of US Treasury bonds and other cash equivalents, and US $20 billion in various fixed income instruments, with cash reserves at historically high levels.

Although some of these reserves are not available (Buffett promises to hold at least $20 billion in cash equivalents to prevent external disasters), such amazing cash reserves are close to 1/5 of Boxill Hathaway's current market value, saying Ming Buffett has not yet found suitable investment targets.

Therefore, the market holds higher expectations for its repurchase of Berkshire stock.

Rather than Buffett, he is the world's leading strategic entrepreneur and diversified trader.

Through Boxill Hathaway's business layout, we can see that this insurance group is based on insurance, banking, investment banking and other financial industries, and is constantly diversifying investment. It covers a wide range of fields, including railway pportation, public utilities, energy, aviation, food and beverage, retail, media, industrial manufacturing, high technology and many other industries.

In the Fortune 500 list of the world's top tenth companies released in 2018, Boxill Hathaway ranked tenth, ranking first among the top ten of the top 500 companies in the world.

If the insurance industry is the cornerstone of Berkshire's huge forest, Buffett's core investment philosophy is to give "trees" a steady stream of "nutrients" - finding undervalued enterprises, and then directly buying, holding, or buying stocks for a long time.