Bill Gates, a prominent figure in the world of philanthropy and technology, continues to make headlines, but not for Microsoft’s performance. Instead, it’s his charitable endeavors that are attracting attention. The Bill & Melinda Gates Foundation, one of the world’s largest philanthropic organizations, has significantly increased its stake in Berkshire Hathaway, making it the foundation’s second-largest holding, accounting for 21.01% of its portfolio. This strategic move has sparked curiosity amongst investors and the public alike.
The shares were not purchased on the stock exchange; rather, they were a personal gift from Warren Buffett to the Gates Foundation. This gesture signifies the foundation’s strong belief in Berkshire Hathaway’s long-term growth and stability. Some analysts speculate that this might be Buffett’s final gift to the foundation, considering recent reports of a cooling friendship between the two and Buffett’s decision to cease further donations to the foundation after his passing.
Despite the potential drama surrounding these developments, many analysts believe the Gates Foundation will retain its Berkshire shares. The reasoning behind this is clear: Berkshire Hathaway offers unparalleled diversification. Unlike a single company, Berkshire Hathaway is a conglomerate, a sprawling network of businesses spanning various industries. Investing in Berkshire shares essentially means investing in a diverse basket of assets.
Berkshire Hathaway’s portfolio is remarkably broad. Property and casualty (P&C) insurers such as Geico and General Re accounted for approximately 40% of Berkshire’s operating profits last year. The insurance business, though volatile, provides a unique advantage for Berkshire through the concept of ‘float’ – money held by insurance companies that has not yet been paid out in claims. Most insurers invest this float in safe, high-grade bonds. However, under Buffett’s leadership, Berkshire uses it to invest in stocks and acquire businesses, a strategy that has proven highly profitable over the years. Berkshire even reported a rare underwriting profit of $5.4 billion, a feat that few insurance companies achieve.
Beyond insurance, Berkshire’s holdings extend to BNSF Railway, a major freight rail network that contributed over 13% to its operating income last year. The company also has stakes in energy, manufacturing, retail, and construction. This diversification mitigates risks associated with individual sectors and offers stability in the face of economic fluctuations.
The question of succession arises as 93-year-old Warren Buffett eventually steps down from the helm. Buffett, known for his astute leadership, has implemented a sound succession strategy. Ajit Jain will oversee the insurance operations, Greg Abel will manage the non-insurance businesses, and two long-time lieutenants, Todd Combs and Ted Weschler, will manage the investment portfolio. All these individuals have honed their skills under Buffett’s guidance, and their ability to navigate the complexities of Berkshire Hathaway remains to be seen.
Despite the uncertainties surrounding succession, experts generally agree that Berkshire Hathaway remains a sound investment. While it may not be considered cheap by traditional metrics, its proven track record of value creation speaks volumes. Many believe Berkshire will continue to be a solid choice for long-term investors, including billionaires like Bill Gates. This investment reflects a shared belief in the potential of a diversified conglomerate, a legacy built on Warren Buffett’s vision, and a future poised for continued success.
