Berkshire Hathaway Inc
Berkshire Hathaway Inc. has almost a “personality
cult” organizational culture which essentially revolves around one man and
his investing prowess. The man’s name is Warren Buffett, the “Oracle of
Omaha.” Historically, Berkshire Hathaway’s business model has been to
purchase insurance companies. One great thing about insurance companies is the
“cash float,” which works as follows. Suppose that a person purchases
a $100,000 whole life insurance policy from Berkshire Hathaway and pays
premiums of $4,000 per year to Berkshire for this policy. The Berkshire
Hathaway company is obligated to pay the $100,000 death benefit when the person
dies; in the meantime it gets to invest the $4,000 per year “float.”
Warren Buffett, who has been a very savvy investor, has made a huge fortune
from investing this float money. But recently, Berkshire Hathaway has been
moving away from purchasing insurance companies with large floats and has been
buying major industrial businesses instead. In 2010, for example, it completed
a $44 billion purchase of one of the nation’s largest railroads, Burlington
Northern Santa Fe (BNSF). Berkshire paid for this acquisition with $15.8
billion in cash it had on hand, and the remainder in Berkshire Hathaway stock.
Mr. Buffett, who was born in 1930, is now well beyond the age when most workers
retire.
For this activity, answer:
•How does Mr. Buffett’s age affect Berkshire Hathaway’s
recent strategic moves such as buying Burlington Northern Santa Fe Railroad
instead of another large insurance company?.
•What does Berkshire Hathaway’s purchase of BNSF Railroad
say about where Buffett thinks the price of energy (oil and gasoline) is going
to be in the future?.
•How does the energy efficiency of shipping goods via rail
compare with shipping goods via truck or airplane?.
