Berkshire Hathaway is one of the world’s top companies. It’s on the list of Fortune 500, and it is something that your average American interacts with on a weekly—if not daily—basis, whether or not they realize it. In fact, Berkshire owns more than 60 different companies which make everything from engines to chocolate. But, Berkshire Hathaway doesn’t actually run any of those companies. In fact, Berkshire tends to have a very hands-off sort of management style, where it leaves most of the decisions up to the CEOs of the respective companies.
So, with that in mind, what exactly does Berkshire Hathaway do? How does the company earn the nearly $100 billion that it currently has sitting around in the bank, waiting to be invested in something? As it turns out, it’s actually not as much of a mystery as it might seem.
When it was first started, Berkshire Hathaway was designed to be a holding company. That means that it put a majority of its worth into the stock market and made money from dividends and various different stocks. And, while Berkshire Hathaway does have an impressive portfolio, far more of its cash excess comes from actually owning and operating businesses.
While Berkshire Hathaway really does have its stake in a huge variety of companies, its primary money-making efforts come from insurance and energy—easily its two biggest sectors. Insurance, in particular, tends to give Buffett quite a bit of money to play with in the form of what insurance companies call “float” or the money that people pay in order to be covered when something happens. And while many insurance companies will eventually lose money on their premiums, it’s still quite a lucrative business at the point that you are doing as much business as Berkshire Hathaway’s GEICO and General Re.
Aside from its insurance business, Berkshire Hathaway also makes money from dividends and from companies like See’s Candies, which makes quite a bit of money but doesn’t have constantly increasing overhead costs. That extra money turns into funds that can be channeled either into other companies or into investments.