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1 August 2014 CFA Institute Journal Review

Berkshire Hathaway: Playing Out the Last Hand (Digest Summary)

  1. Marvin Powell, CFA

Warren Buffett has overcome numerous challenges to grow Berkshire Hathaway into America’s fifth most valuable public company. One of the biggest challenges his company will face over the coming years is the transition to new management.

What’s Inside?

Warren Buffett has been able to successfully develop Berkshire Hathaway into a massive, complex conglomerate. But questions continue to surface regarding Berkshire Hathaway’s ability to maintain this growth given its size as well as how to best transition to a new management team.

How Is This Article Useful to Practitioners?

Warren Buffett is considered an investment icon throughout much of the investment management industry. As such, a better understanding of his investment practices would be a great benefit to many. The author helps readers understand how Berkshire Hathaway came to be the massive conglomerate that it is today. The author also details the struggles the company is currently facing.

The company has been so successful over the past decades that it now owns more than 80 companies. Buffett has been able to consistently beat the market by buying quality firms that he is confident he understands. These investments typically have a hard-to-replicate advantage over competitors. Moreover, he favors companies with a strong ethical culture and quality management. These principles have allowed Berkshire Hathaway to achieve a Sharpe ratio that is higher than that of any other share that has traded for at least 30 years since 1926. Buffett will be impossible to replace, and it remains unclear whether the company culture will remain intact. Business politics and a lack of attractive investment opportunities could also be potential challenges to overcome.

Abstractor’s Viewpoint

The author provides great insight into the history of Berkshire Hathaway. Moreover, I found it very interesting to learn about the investment criteria that have been used over multiple decades to achieve the company’s unparalleled success. I will be interested to see how Berkshire Hathaway transitions to new management in the near future as well as how the company alters its investment strategy to add to its already stellar track record.

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