How Berkshire Hathaway Inc Came To Be

I am here in Omaha, Nebraska, the hometown of you know who.

So, I have decided to spend some time understanding the history of Berkshire Hathaway inc. Mainly, how did Warren Buffett come to be the largest shareholder of the company and how he transform a dying textile mill into one of the largest conglomerates in the world.

Warren Buffett started investing in Berkshire Hathaway back in 1962. During that time, the company was run by the Stanton family.

Buffett invested in the company through his partnership, mainly because the company was trading significantly below its net working capital. By 1963, Buffett and his partners became the company largest shareholders of the company and started taking a more active role in the business.

However, due to difference with the then management, Jack Stanton, Buffett began buying out the company.

He increased his shareholding to 49% and changed the management of the company using his votes. By the time he gained control, the company only had two operative textile mills left. It employed about 2,000 people.

However, Buffett has publicly commented that his purchase of Berkshire Hathaway was a mistake as the business was set to fail due to the economics of the business.

Buffett delegated the management of the mill to Ken Chace, the President of Berkshire Hathaway. Meanwhile, Buffett focussed solely on the investment operation of the company.

This was the beginning of Buffett’s famous decentralized model of management, where operating companies are run independently but each of them has to pass all excess cash earned back to headquarter where Buffett will be responsible for reinvesting the proceeds.

The big growth stage of the company started when Buffett purchased two insurance companies, National Indemnity and National Fire and Marine Insurance back in 1967. Buffett understands how insurance companies operates. So he was able to expand the company rapidly using the cash obtained from the insurance businesses.

The rest, as we know, is history.

Berkshire Hathaway Inc invested in many operating businesses and took huge stakes in other listed companies. Warren Buffett took control of the company 50 years ago and has generated gains of about 1,826,163% for its shareholders over the past half  century. Not bad for a mistake.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns Berkshire Hathaway Inc.