Case study: Berkshire Hathaway

Berkshire Hathaways Investment Strategy

Berkshire Hathaway Inc. has almost a personality cult organizational culture which essentially revolves around one man and his investing prowess. The mans name is Warren Buffett, the Oracle of Omaha. Historically, Berkshire Hathaways business model has been to purchase insurance companies. One great thing about insurance companies is the cash float, which works as follows. Suppose that a person purchases a $100,000 whole life insurance policy from Berkshire Hathaway and pays premiums of $4,000 per year to Berkshire for this policy. The Berkshire Hathaway company is obligated to pay the $100,000 death benefit when the person dies; in the meantime it gets to invest the $4,000 per year float. Warren Buffett, who has been a very savvy investor, has made a huge fortune from investing this float money. But recently, Berkshire Hathaway has been moving away from purchasing insurance companies with large floats and has been buying major industrial businesses instead. In 2010, for example, it completed a $44 billion purchase of one of the nations largest railroads, Burlington Northern Santa Fe (BNSF). Berkshire paid for this acquisition with $15.8 billion in cash it had on hand, and the remainder in Berkshire Hathaway stock. Mr. Buffett, who was born in 1930, is now well beyond the age when most workers retire.

For this activity, answer:

How does Mr. Buffetts age affect Berkshire Hathaways recent strategic moves such as buying Burlington Northern Santa Fe Railroad instead of another large insurance company?
What does Berkshire Hathaways purchase of BNSF Railroad say about where Buffett thinks the price of energy (oil and gasoline) is going to be in the future?
How does the energy efficiency of shipping goods via rail compare with shipping goods via truck or airplane?

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