Warren Buffett’s Berkshire Hathaway is one of the world’s largest companies. Although its exact value changes frequently due to the market and the economy, the company itself is worth well over $200 billion at last count. But where does all of the money come from?
With the world’s foremost investor at its helm, most people would be inclined to think that Berkshire’s fortune comes from clever investing. And while they aren’t completely wrong, they aren’t completely right either. In fact, the company used to make almost all of its money from its portfolio. Now, however, most of its money comes from owning rather than investing in businesses.
This shift started happening in early 2000 when Berkshire took its first steps into the energy business. Eventually, the corporation began buying more and more utility businesses and formed Berkshire Hathaway Energy, one of Berkshire’s famed Powerhouse Six. Soon, Berkshire Hathaway began purchasing other major companies and now sells, as Buffett puts it, “everything from lollipops to jets.”
All in all, Berkshire currently owns more than 60 different companies in a variety of industries. View the list of companies here. In 2016, those companies netted Berkshire a record $17.57 billion in after-tax profits. Berkshire’s investment portfolio, by contrast, only gained Berkshire $6.5 billion in the same tax year.
The reason for this shift is likely due to the sheer size of Berkshire Hathaway. For a multi-billion dollar corporation, finding investments that will significantly move the company forward is difficult. Even companies are harder (although not as hard) to find. For now, however, Buffett seems content to stick with what is working.
“Charlie and I have no magic plan to add earnings except to dream big and to be prepared mentally and financially to act fast when opportunities present themselves,” Buffett said in his 2016 shareholder letter. “Nevertheless, Berkshire’s collection of good businesses, along with the company’s impregnable financial strength and owner-oriented culture, should deliver decent results. We won’t be satisfied with less,” Buffett wrote.