In 2020, Warren Buffett singled out four companies as “jewels” among Berkshire’s holdings.
They are very diverse, from technology and insurance to energy and railways.
Five years later, Berkshire shares are up 40% as these companies continue to deliver results.
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Every year since 1977, Warren Buffett has written an open letter to Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) investors. In them, he celebrates successes, takes responsibility for mistakes, and pontificates on what makes some companies special.
In his 2020 letter, he revealed that Berkshire Hathaway had returned 2,810,526% since he took the helm 55 years ago, in 1965. Reflecting on his performance, he revealed that the majority of Berkshire’s value was in four businesses. “All four of them are gems,” he said.
In the five years since then, Berkshire Hathaway shares have returned another 40%, putting its return at 5,502,284%. So, it seems that the “jewels” have continued to work their magic. What exactly are they? Can Berkshire Hathaway continue to deliver when Buffett leaves office in January?
Profiting more than $100 billion from Berkshire’s $40 billion position in Apple(NASDAQ:AAPL)You can see why Buffett would call it one of the gems driving his conglomerate’s returns. However, he has been a stock seller since 2023, dumping nearly 70% of Berkshire shares.
Years after calling Apple “probably the best business I know in the world,” Buffett explained in 2024 that its sale was due to tax reasons. Despite the sale, Apple remains Berkshire’s largest holding, with shares worth $64.8 billion representing 20.7% of its holdings as of the latest quarter.
Berkshire’s property and casualty insurance business has one huge advantage; When you collect insurance premiums, you can invest them and keep the returns you make on other people’s money. Being insurance, it has to pay some claims every year. But in 2020, his war chest of $138 billion in free float, or “float,” could be invested in stocks or bonds, as Buffett decided.
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Imagine the privilege of being able to profit from around $100 billion in other people’s capital each year (and, unlike hedge funds, you keep 100% of the profits, instead of the industry standard 20%). That’s Berkshire Hathaway’s property and casualty business in a nutshell.
By 2025, Berkshire’s insurance business had generated $32 billion in after-tax underwriting profits, and its float had grown to $171 billion. That means this “gem” is bigger than ever, putting $33 billion more of other people’s money to work for Berkshire Hathaway.
Berkshire Hathaway Energy (BHE), which Berkshire controls with its 91% stake, is, in Buffett’s words, “a very unusual utility company, whose annual profits have grown from $122 million to $3.4 billion during our 21 years of ownership.”
That was in 2020. Last year, BHE generated $3.73 billion in profits. That roughly 10% increase isn’t too impressive over four years, especially given BHE’s explosive past growth. Still, the value of that year’s earnings is nearly 3,000% of what Berkshire paid to acquire the utility that became BHE in 1990.
BNSF, the largest railroad in the United States by freight volume, came under the Berkshire umbrella in 2010, when the latter paid about $34 billion for the acquisition. It was a respectable deal, as BNSF had paid Berkshire $41.8 billion in dividends through 2020. BNSF pays these dividends only after meeting all of its business needs and maintaining a balance of $2 billion that allows it to borrow at low rates without Berkshire guaranteeing the loans.
Last year, BNSF generated just over $5 billion in profits, and in 2023, Buffett predicted that, “a century from now, BNSF will still be a major asset for the country and for Berkshire. You can count on it.”
As you saw, Berkshire has been selling one of the jewels (Apple) for a significant capital gain. Still, Berkshire’s remaining 238 million shares generate $62 million in dividends each quarter for Berkshire.
BNSF was never going to be a success for Berkshire, because the business is capital-intensive. Still, he has already returned Berkshire its initial investment in the form of dividends, and will receive more each year.
BHE’s operating profits soared 60% in 2024, while the insurance underwriting business generated $9 billion in operating profits, nearly double the total of $5.4 billion in 2023. Floating Berkshire’s property and casualty insurance business generated $13.6 billion in operating profits, also up sharply from $9.5 billion in 2023.
It seems, then, that the four jewels continue to pay off for Berkshire Hathaway. When Buffett steps down as chairman and CEO in January, investors should take comfort in knowing that Berkshire’s four crown jewels will remain.
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William Dahl has positions at Apple. The Motley Fool has positions and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Buffett calls these 4 companies that make up most of Berkshire Hathaway “jewels” was originally published by The Motley Fool
