Buffet Continues Winning Ways

Buffet

Warren Buffet continued his winning ways again this past year, capitalizing greatly on the custom of Insurance float investing strategies, analysts say.  The Nebraska-based Berkshire Hathaway Inc. announced that their fourth quarter profits rose 9.6 percent to $4.99 billion or $3,035 a share.  That is a rise from $4.55 billion, or $2,757 a share in profits the year before.

Although people consider Buffet an investment guru, he maintains the secret to his success was a book that influenced his mindset many years ago called The Intelligent Investor, by Benjamin Graham.  Reportedly, every year Buffet writes a letter to his Berkshire shareholders, in which he recommends this book, while informing them of what is happening at the company, along with the reasons why.

One simple investment strategy that Buffet has employed for decades takes advantage of premiums from insurance subsidiaries like Geico. Simply put, when the Insurance company takes your money for car insurance, life insurance, health insurance or any other insurance, they are allowed invest the premium in some other venture, gambling with it to make huge sums.  They hope to make a bunch of money investing it until said insurance “claims” arise. This system, called Float, is the number one way with which Buffet has continued his winning ways.

Buffet

His profits have amassed the largest equity stakes in companies such as Coca-Cola Co., while also taking complete ownership of many businesses. Berkshire currently has many operating units in varied areas, like energy, transportation, manufacturing and retail industries, although his main sources of profit have always centered on Insurance floats.

The insurance segment posted a quarterly underwriting profit of $394 million, compared with a loss of $19 million a year earlier. Premiums held by those businesses before paying claims, known as float, showed minimal change from the end of September’s reported $77 billion. Fourth quarter reports of 2012 also included the claims from the vast destruction left by superstorm Sandy, which leveled many parts of the East Coast, costing Insurance companies untold billions.

Full year profits for Berkshire totaled $19.5 billion, significantly eclipsing the 2012 record annual profit of $14.8 billion.  Accordingly, Buffets cash stash rose to $48.2 billion by Dec. 31, up from $42.1 billion at the end of September.

One of the Berkshire-investment companies, Burlington Northern Santa Fe railroad contributed $1.12 billion to quarterly earning, up from $932 million in the year prior. Additionally, MidAmerican, an energy utility owner, helped add $325 million to Berkshire’s profits, compared with a total of $294 million a year earlier.  Buffet said he considers the railroad and energy companies amongst his “powerhouse five” of non-insurance businesses. 

Another $4.23 billion in earnings from manufacturing, service and retailing units helped boost the numbers, as well, compared to $3.7 billion in the prior year, with companies like Fruit of the Loom, Lubrizol, which is an engine-additive maker, and Marmon holdings, which is a manufacturer of construction materials.

Surprisingly, Coke fell this year, as the soft-drink maker faced sluggish growth abroad, possibly amid recent concerns about the healthiness of its product.

Buffet disclosed that he likes to see an increase more than the Standard & Poor’s 500 Index, including dividends. He managed such a feat in every five-year period from 1965, when he took control of Berkshire, through 2012.  Partly, that benchmark run was interrupted some of the recent financial uncertainties.

All in all, Buffet has proven that his strategies have consistently proven his ways of investing are very winning, even though his Deputies Todd Combes and Ted Weschler also added investments last year and their picks outperformed Buffet’s.  When it comes to investing, especially within the Insurance float strategy, Buffet is a proven winner.

By Jeff Rowe

SOURCES:

Google News
Bloomberg Businessweek
Forbes

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