BERKSHIRE HATHAWAY — How Buffett turned an unprofitable textile mill into a major investment fund

In today’s Strifor review, we tell the story of Berkshire Hathaway, a company founded in 1839 as a textile mill. Since then, it has traveled a fascinating path to become one of the most influential holding companies in the world, owning dozens of subsidiaries and significant stakes in the world’s leading corporations.

Berkshire Hathaway before the arrival of Warren Buffett

Founding and Early Years (1839-1950s)

Berkshire Hathaway was founded in 1839 as a textile mill called Valley Falls Company in the state of Rhode Island, USA. The factory produced fabrics and expanded rapidly, becoming one of the largest manufacturers in the United States.

Later, in 1929, Valley Falls Company merged with another textile company, Berkshire Cotton Manufacturing Company, located in Massachusetts. This merger created a new company called Berkshire Hathaway, which continued its textile manufacturing operations.

Growth in the textile industry (1950s)

After World War II, the U.S. textile industry experienced growth and Berkshire Hathaway continued to gain momentum. However, despite considerable efforts, the company was unable to significantly improve its competitiveness in the face of stiff competition and changes in the global economy. The industry was booming, but production facilities required major investments in modernization.

Economic problems and takeover

By the 1950s, Berkshire Hathaway began to face difficulties in its core business, textile manufacturing. Although production was increasing, the company’s profits were not increasing as much as expected. The weaving business suffered from low profits as well as high competition from foreign fabric manufacturers who offered cheaper products.

To cope with the financial problems, the company began to absorb other mills and businesses, but this only improved the financial situation in the short term. In 1960, Berkshire Hathaway, experiencing difficulties, was bought out by businessman Seabury Stanton, who decided to restructure the company, but in the end could not significantly improve its situation.

How the company fell into Buffett’s hands

In 1962, Warren Buffett, an ambitious young investor, noticed Berkshire Hathaway on the stock market. He was surprised by the low stock price of the company, which was already under Stanton’s management and was struggling despite having assets. Buffett began buying the company’s stock using his strategy of “value investing” — finding undervalued companies with long-term potential.

By 1965, Buffett became Berkshire Hathaway’s largest shareholder and took over the company. From that point on, a new era began for Berkshire Hathaway. Buffett decided to abandon further attempts to develop the weaving business and focused on investing in other companies, using the free funds from closing inefficient businesses.

Instead of continuing to lose money in the textile industry, Buffett began to reallocate capital and invest in more profitable and promising companies such as insurance and other industries. This became the foundation of the investment strategy that made Berkshire Hathaway one of the largest holdings in the world.

Principal activities and business model

Today, Berkshire Hathaway is a holding company that owns and operates a variety of businesses in insurance, energy, railroads, manufacturing, and even retail. One of the main areas of focus remains insurance companies (especially GEICO), which generate huge cash reserves, aka “premium flow.” Buffett and his team use these reserves for long-term investments, including in stocks and acquisitions.

Financial performance and momentum

Berkshire Hathaway is renowned for its ability to generate profits even during volatile economic periods. Since Buffett’s arrival, the company has grown in value by thousands of percent. One of its top financial metrics is the increase in stock price, which allows the company to regularly outperform the market. 

Berkshire Hathaway has a strong influence on the global financial markets. Every announcement by Warren Buffett or change in the company’s portfolio draws close attention from investors and analysts around the world. Berkshire Hathaway also attracts the interest of large investors who closely follow its actions and apply similar approaches to their investments.

Berkshire Hathaway has done some landmark deals:

• Investment in Coca-Cola: In the late 1980s, Buffett purchased about $1.3 billion worth of stock in the company, which over time became one of his most lucrative investments.
• Acquisition of railroad company BNSF: Buying BNSF for $26 billion in 2009 gave the company a steady source of revenue in transportation.
• Buying and selling Apple stock: Berkshire originally made Apple stock one of the largest positions in the portfolio. However, Buffett has sold many securities this year.

Important Changes and Current Challenges

With the recent move into technology, which has been less typical for Buffett, the company has shown a willingness to adapt to new trends. At the same time, there are growing questions about the company’s future and succession. The main challenges Berkshire Hathaway will face include slowing economic growth, succession issues and a possible decline in profitability amid high competition.

Right now, Berkshire Hathaway continues to be a solid financial vehicle for long-term investors. Despite the age of Buffett and Vice President Charlie Munger, the company is focusing on succession and training a new team. Berkshire remains a strong brand, and its strategy focused on long-term growth makes it attractive to those seeking stability and reliability.

To summarize

Berkshire Hathaway is an example of a successful holding company that uses conservative and long-term investments to achieve high results. You can trade CFD shares of Berkshire Hathaway and other world’s largest companies with Strifor broker. We work with clients through the MetaTrader 5 (MT5) trading platform from MetaQuotes, which allows not only to quickly conclude transactions, but also to analyze price movements in detail. Strifor also regularly offers lucrative promotions, additional deposit amounts and interest on the balance, where you can get up to 18% of the amount on your balance. Join Strifor, we always pay.

Attention! An investment in CFDs carries the high risk of losing all investment funds.  87% of retail investor accounts lose money when trading CFDs with this provider. Past investment success does not mean future success.