On 4 May, Berkshire Hathaway will be holding its epic annual meeting in Omaha, and the Fool will be there to bring you everything you need to know from this "Woodstock for Capitalists".
A version of this article was originally published on Fool.com
WASHINGTON, DC -- Warren Buffett is known for being a long-term investor. And I mean long-term investor. In one of Buffett's best-known quips, he said:
"When we own portions of outstanding businesses with outstanding managements, our favourite holding period is forever."
When we look at Buffett's company, Berkshire Hathaway (NYSE: BRK-A.US) (NYSE: BRK-B.US), though, is it an "outstanding business" that investors can consider holding forever? I think so, and following are 11 reasons I believe Berkshire is built to succeed for years -- and decades -- to come.
11. Succession plans
There are companies that talk about succession plans and there are companies that make succession plans. Berkshire is a company that has made succession plans. We've seen the company add investors Todd Combs and Ted Weschler into the mix, and Buffett has assured investors that there is an unnamed but ready-to-step-in operational replacement for the Oracle.
10. Acquisition of capital-intensive businesses
In recent years, Berkshire has bought large, capital-intensive businesses -- most notably BNSF Railway. What these businesses give Berkshire is a vehicle into which it can, year after year after year, deploy large chunks of capital and earn reasonable returns.
9. Conservative investment portfolio
If there's one thing that people think of Warren Buffett as, it's a great investor. But he's also a very conservative investor -- particularly when it comes to Berkshire's portfolio. Berkshire's "big four" stocks -- Wells Fargo, Coca-Cola, IBM and American Express -- are all companies that we could see solid returns from in the years ahead. But, more importantly, they're all companies that we're unlikely to see drastic underperformance from.
8. Decentralised management
There's no doubt about it -- Warren Buffett is important to Berkshire Hathaway. However, Buffett is not important when it comes to the day-to-day operations of the many companies that Berkshire owns. Why? Because the company was set up so that those companies run very much as independent entities. This ensures that many of the day-to-day operations of the Berkshire empire won't be knocked off course if there's a change in the CEO suite.
7. GEICO and other insurers with "high quality" float
Berkshire has found much of its success through investing the float -- that is, money held for policyholders -- of its insurance companies. As Buffett has reminded shareholders many times over, though, not all float is created equal. At Berkshire, the top-notch management teams at the insurance subsidiaries don't just work to provide lots of float that Buffett, Combs and Weschler can invest; they provide "high quality" float that pays Berkshire through profitable underwriting.
6. Business model
The business model at Berkshire is one of the most beautiful aspects of the company. At the core there are Berkshire's high-quality insurance businesses -- including the ubiquitous GEICO -- that provide investable capital. At the same time, there is a small army of retail, manufacturing, and other wholly owned businesses that spit off free cash flow that can be invested or used to buy even more businesses.
5. Berkshire aura
To be fair, if Berkshire started performing horribly at some future date after Warren Buffett had passed away, the Berkshire aura would likely start to dissipate. But up until that point, Berkshire will continue to carry that je ne sais quoi that allows the company to acquire companies and structure investments -- like Bank of America preferred stock and warrants -- that most investors don't have access to.
What is Berkshire really? An investment company? An insurer? A retail conglomerate? It's actually all of those things, and more. Investing in Berkshire in many ways is similar to investing in a high-quality mutual fund that provides exposure to many different industries all at once.
3. Other operating businesses
See's Candies, RC Willey, The Pampered Chef, NetJets, Benjamin Moore, Fruit of the Loom, Business Wire, Brooks, Dairy Queen. These companies are familiar to people all over the country -- and in some cases the world -- because these Berkshire-owned business are among the best, if not the best, in their respective industries.
A major challenge for many publicly traded companies is trying to appease shareholders on a quarter-to-quarter basis on the basis of Wall Street analysts' earnings estimates. Having shareholders who... um, freak out when you don't meet quarterly estimates makes it much more difficult to keep a focus on the long term. While Berkshire has a very diversified shareholder base, many of its owners are fans of Buffett and have been listening to him extol the virtues of long-term investing for years, if not decades. In other words, it's a very well-coached group of owners.
1. Built by Buffett and Munger
There will be a day when Buffett and his right-hand man, Charlie Munger, will no longer be running Berkshire. But this is a company that was built by those two. It's a group of leaders -- both at the top and within all of the individual subsidiaries -- that these two have faith in. And its a company that's imbued with closely held Buffett views like:
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."
Billionaire investor Warren Buffett is known for his uncanny ability to spot a bargain and act decisively. After buying quality names at cheap prices during the financial crisis, last year he invested almost $1 billion in one of the UK's best-known blue chip brands -- a FTSE 100 giant in which Buffett now has a 5% stake.
If you'd like to know which UK company tempted the legendary investor to make a rare investment outside the US, then this free Motley Fool report has all the details. What's more, you may still be able to buy the shares Buffett bought at the price he paid! Indeed, the company in question has increased its dividend every year for 28 years and currently offers a yield of 4% -- potentially making the share a very attractive long-term investment for income-seekers.
> Matt owns shares of Berkshire Hathaway and Bank of America.