Taking a Long Term View of Berkshire’s Non-Insurance Subsidiaries

Published on February 25, 2010

In the process of preparing The Rational Walk’s 2010 Berkshire Hathaway Briefing e-Book, we are taking a very long term view of the company.  It is important to avoid dwelling on quarterly results or even year to year results because doing so invariably comes at the expense of gaining insights that only a much longer timeframe can provide.  Let’s take a brief look at one example.

As most Berkshire shareholders know, the “Manufacturing, Service, and Retailing” group includes businesses selling candy, carpet, paint, bricks, recreational vehicles, underwear, precision machinery, equipment for the livestock industry, and much more.  Many of Berkshire’s subsidiaries have numerous subsidiaries of their own.  Marmon itself is comprised of 130 individually operated subsidiaries.

A Snapshot in Time:  1999

What many shareholders looking at recent results may not realize is how dramatically this group has grown over the past ten years, mostly through acquisitions made possible by reinvestment of cash flows generated by other Berkshire businesses.  Let’s take a look at the businesses that Berkshire had in 1999 that are currently part of the “Manufacturing, Service,  and Retailing” reporting segment:

The data in the exhibit show each of the non-insurance business units within Berkshire for 1999 along with revenue, pre-tax, and net earnings figures.  Along with the 1999 reporting segment, we have specified the current business segment into which the business has been reclassified for 2008.  None of the individual reporting segments that existed in 1999 remain as stand-alone segments today.

Fast Forward to 2008

Fast forward to 2008 and take a look at Berkshire’s Manufacturing, Service, and Retailing reporting segment:

It is almost as if you are looking at an entirely different business.  Keep in mind that in addition to the growth in the manufacturing, service, and retailing segment, Berkshire also has added MidAmerican Energy which is carried as a separate reporting segment.

What does this discussion really prove other than the fact that companies change with the passage of time?  Standing on its own, this discussion isn’t meant to do much other than to illustrate that it pays off to look at very long periods of time when analyzing the progress of a business.  Looking at quarterly financial statements or even the past couple of years of annual reports can mask the overall progress (or destruction) of a business because too much transient noise gets into the equation.  Looking at a business over the course of a decade, including “before” and “after” snapshots sometimes results in figures that just jump off the page.

Berkshire Hathaway 2010 Briefing Book

Be sure to return to The Rational Walk for coverage of Berkshire Hathaway’s 2009 Annual Report and Warren Buffett’s annual letter to shareholders which comes out on Saturday morning.  We will be busy updating our models for the 2010 Berkshire Hathaway Briefing Book which is our first e-book product.  A free sample will be provided to help you decide whether the full e-book is worth buying.  General availability of the e-book is expected early next week.  Until then, there may be fewer than the usual number of articles as we work to complete the e-book.

The author owns shares of Berkshire Hathaway.

Taking a Long Term View of Berkshire’s Non-Insurance Subsidiaries
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