ANOTHER MISSING THING

To sum up, there are two mantras of investing:

Buy good company with durable business advantages Let your investment grow with time

While having a long term mindset has been repeatedly stressed and the importance of picking good business has been taught almost in every investing book, people often miss another key element of successful investing.

According to its 2019 annual report, in the last three years, Berkshire Hathaway — which has become Warren Buffet’s investment vehicle since 1965 — has purchased net 82,178 M of security equites. In other words, for the sake of simplicity, since 2017 Berkshire has invested 82,178 M in stock without necessarily selling its previously owned investment This is an investor missing thing. The continuous stream of capital to be invested.

This brings us to the question: where does this stream of money come from?

DEEPER LOOK AT BERKSHIRE FINANCIAL REPORT

As stated in the 2019 annual report, by excluding its common stock unrealized gain (read: Apple, Well Fargo, Visa, etc) and investment — derivative contract gain, Berkshire earned 28,913 M (pretax) which originated from company insurance and non insurance business. Digging deeper, both sectors provide average 22,916 M free cash flow respectively which is ready to deploy to finance another investment.

Now we have complete chart

GRAND SCHEME OF BERKSHIRE INVESTMENT

In the early days, Berkshire Hathaway focused on acquiring insurance companies. Its business model: receive cash now and pay claims someday in the future (often long in the future) make this industry very attractive to Warren Buffet. This premium which is paid regularly by the client, provides a continuous supply of money that can be invested in another business.

Berkshire began to build its empire by buying National Indemnity Company and National Fire & Marine Insurance Company In 1967, followed by GEICO and General Reinsurance in 1996 and 1998 respectively. Till 2019, insurance business is the main fuel of Berkshire investment.

Not only insurance companies, Berkshire expanded its business by acquiring companies from a wide array of sectors as following:

Railroad and Energy earned $8.3 billion: Infrastructure duo — BNSF railroad and Berkshire Hathaway Energy Manufacturer contributed $4.8 billion: Housing and modular homes manufacturer — Clayton Homes, World’s Leading Producers of. Metal Removal Technology and Tools — International Metalworking, leader in specialty chemicals — Lubrizol, industrial manufacturer — Marmon, and aerospace parts manufacturer — Precision Castparts Another Manufacturer $1.9 billion: Dealership group — Berkshire Hathaway Automotive, manufacturing premium-quality insulation, commercial roofing and building materials — Johns Manville, world’s largest private jet company — NetJets, carpet maker — Shaw and specialty distributor of electronic components — TTI)

ORACLE OF OMAHA IS ALCHEMIST OF NEBRASKA

As we’ve seen, another point of view which is often overlooked by investors is Warren Buffet capability as businessman and manager. Personally I believe that Mr. Buffet stock picking — however impressive it is — could be matched by some great names like Peter Lynch or Jim Simons, but his talent to make money as a manager is unparalleled. The combination of those two delivers outstanding results.