Guest Blog By Scott Rahe
Scott Rahe is a CU Boulder student with the Leeds School of Business. He is studying Finance and working on his real estate certificate. Here he shares his guest post on the History of Berkshire Hathaway. Recently, Bob Gordon decided to switch real estate brokerages to join Berkshire Hathaway HomeServices. The following will look at why Bob made the transition and a brief history of Berkshire Hathaway.
Bob Gordon Transitions to Berkshire Hathaway
I am excited to be affiliated with a Warren Buffet company. A single share of stock trades at over $ 200K these days. The man is incredible at picking winners and investing in smart companies at the right time. I want to be part of something special and made the decision to join the team at the Boulder Berkshire Hathaway office!
History of Berkshire Hathaway
The history of Berkshire Hathaway begins in 1955 when Berkshire Cotton Manufacturing merged with Hathaway Manufacturing. This merger began an industry decline due to inflation, technological change, and foreign competition. In 1965, Warren Buffet and his investment partners acquired the company. Buffet realized that the only way to save the company would be to create large capital investments. Berkshire Hathaway has used these capital investments to gain control in different industries such as insurance, apparel, building products, financial products, flight services, retail, grocery distribution, and carpeting. One major key to this industry growth is the principles used by Buffet in regards to investing. Go even deeper with more history here.
Effect of Buffet’s Investment Philosophy on History of Berkshire Hathaway
The following four philosophies helped shape the history of Berkshire Hathaway over the last 60 years. Buffet believed that if these principles were followed, an investor would get the maximum value out of the possible opportunities sitting in front of him. BTW, one of the major reasons Bob Gordon transitions to Berkshire Hathaway: sound economics. See below or visit Investopedia for even more technical financial analysis.
1. Use economic reality, not accounting reality
Accounting reality is conservative and governed by GAAP. Investment decisions should be based on economic reality, which includes intangible assets that may be extremely valuable to the business.
2. Time is money
The intrinsic value of an investment is defined as the discounted value of the cash that can be taken out of a business during its life cycle. The gain in intrinsic value could be modeled as the value added by the business above and beyond the charge for the use of capital in that business.
3. Diversification and Risk
Buffet believes that diversification and risk comes from not knowing what you are doing. Since Berkshire Hathaway uses almost no debt financing in their operations, they have lower levels of risk. This means the company can use a lower, 30 year Treasury Bill discount rate when calculating the intrinsic value. These lower discount rates have created more value in the history of Berkshire Hathaway.
4. Alignment of Agents and Owners in the History of Berkshire Hathaway
For 4 of Berkshire’s 6 directors, over fifty percent of there family wealth is represented in the shares of Berkshire Hathaway. This keeps the interests of the company aligned with the interests of the investors, creating more wealth for all involved.
Check out the 2013 Annual report for more BHHS details.
“I am a better businessman because I am an investor” (Warren Buffet).
Bob Gordon Realtor Thanks Scott Rahe
Scott will be graduating from the University of Colorado Boulder in the Spring of 2015. This is his third contribution to the blog Boulder real estate news. Considering a transition in housing? Contact Bob now to get started. Seeking resources?