Taking a Look at This "Mini-Berkshire" Stock

Berkshire Hathaway Business Model, Boston Omaha, & Weekly Activity

Berkshire Hathaway’s Secret Sauce

Berkshire Hathaway (BRK.A; BRK.B) is probably best known for its CEO Warren Buffet, one the world’s wealthiest people and the “Oracle of Omaha”, BRK.A does not only buy or sell stocks as the general perception is. They are a diversified holding company whose subsidiaries engage in insurance, freight rail transportation, energy generation and distribution, services, manufacturing, retailing, and other ventures. Berkshire also holds a large portfolio of equity securities and derivatives, which heavily weighs in on the company's financial performance.

BRK.A reports in five major business segments, some of which were mentioned above. These are Insurance, Manufacturing, Service and Retailing, Berkshire Hathaway Energy, and Burlington Northern Santa Fe (BNSF). Berkshire’s insurance and reinsurance business activities are conducted through numerous domestic and foreign-based insurance subsidiaries. Berkshire’s insurance subsidiaries provide insurance and reinsurance of property and casualty risks and reinsurance of life and health risks worldwide. In this segment, Berkshire Hathaway generates revenue in two ways: Insurance underwriting and Insurance Investment.

Berkshire's manufacturing businesses fall into three categories: industrial products, building products, and consumer products. Industrial products include their industrial products businesses manufacture components for aerospace and power generation applications, specialty chemicals, metal cutting tools, and other products primarily for industrial use. Their building products include the following: prefabricated and site-built residential homes, flooring products, insulation, roofing, engineered products, building and engineered components, paint and coatings, and bricks and masonry products. Lastly, their consumer products include recreational vehicles, alkaline batteries, various apparel products, jewelry, and custom picture framing products.

Their service and retailing segment are businesses like grocery and food service distribution, professional aviation training, fractional aircraft ownership, and distribution of electronic components as well as media businesses and logistics businesses. The retail businesses include automotive products, home furnishings, and other operations that sell various consumer products.

Berkshire Hathaway Energy is a global energy company with subsidiaries and affiliates that generate, transmit, store, distribute and supply energy. BHE’s locally managed businesses are organized as separate operating units but reported under one segment. BHE’s domestic regulated energy interests are comprised of four regulated utility companies serving approximately 5.2 million retail customers, five interstate natural gas pipeline companies with approximately 21,100 miles of operated pipeline having a design capacity of approximately 21 billion cubic feet of natural gas per day, and ownership interests in electricity transmission businesses (Wow!). BHE’s Great Britain electricity distribution subsidiaries serve more than 3.5+ million electricity end-users, and its electricity transmission-only business in Alberta, Canada, serves close to 85% of Alberta’s population. Also, this segment includes a diversified portfolio of independent power projects, a liquefied natural gas export, import, and storage facility, the largest residential real estate brokerage firm in the U.S., and one of the largest residential real estate brokerage franchise networks in the U.S.

For the last segment, Burlington Northern Santa Fe (BNSF) classifies its major business groups by the type of product shipped, including consumer products, industrial products, agricultural products, and coal. Their freight rail transportation business operates one of the largest systems in North America.

Also, it’s important to note that BRK.A holds significant stakes in publicly traded companies (which they are probably best known for). They own a large portfolio, some of the company’s top equity holdings include Apple (AAPL) which is by far their largest stock holding at $119 billion as of year-end 2022, accounting for 40% of its stock portfolio and just over 5% of Apple's outstanding shares. Bank of America (BAC) with a stake valued at $34 billion as of the end of 2022, accounting for 11% of the portfolio, and Chevron (CVX) which was increased greatly by BRK.A in 2022, reaching to $30 billion. CVX accounts for 9.7% of their equity securities portfolio.

Here are some of BRK.A’s notable businesses: Berkshire Hathaway Automotive, GEICO, BH Primary, BHRG, Precision Castparts, The Lubrizol Corporation, Johns Manville, Acme Building Brands, Duracell, Fruit of the Loom, Borsheims, Helzberg, Ben Bridge, See’s Candies, Pampered Chef, Oriental Trading Company (party supplies, school supplies), Detlev Louis Motorrad, HomeServices of America, Inc., McLane Company, NetJets, FlightSafety, and many others.

In BRK.A’s 2022 annual shareholder letter, Warren Buffett lays out what they do in his own words:

“Charlie and I allocate your savings at Berkshire between two related forms of ownership. First, we invest in businesses that we control, usually buying 100% of each. Berkshire directs capital allocation at these subsidiaries and selects the CEOs who make day-by-day operating decisions. When large enterprises are being managed, both trust and rules are essential. Berkshire emphasizes the former to an unusual – some would say extreme – degree. Disappointments are inevitable. We are understanding about business mistakes; our tolerance for personal misconduct is zero. In our second category of ownership, we buy publicly-traded stocks through which we passively own pieces of businesses. Holding these investments, we have no say in management. 3 Our goal in both forms of ownership is to make meaningful investments in businesses with both long-lasting favorable economic characteristics and trustworthy managers. Please note particularly that we own publicly-traded stocks based on our expectations about their long-term business performance, not because we view them as vehicles for adroit purchases and sales. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.”

Now, why am I telling you all this? Well, what if I told you there was a tiny company that’s mirroring BRK.A’s business model successfully (so far) and is run by a Co-CEO related to Mr. Warren Buffett (actually, yes)? Look no further than one of my favorite businesses, Boston Omaha…

Taking a Look at Boston Omaha

1. Boston Omaha (BOC)