Warren Buffett's massive, five decade bet on America

Mon, May 7 2018 • 8:00 AM EDT

Berkshire subsidiaries produce the components, goods and services that help drive the engine of American commerce.

Warren Buffett has spent the last five decades making a massive, long-term bet on America.

His conglomerate, Berkshire Hathaway, makes and sells everything from bricks and batteries to cowboy boots, underwear and Ginsu knives. To illustrate how intertwined the company is with American life, Berkshire subsidiaries sell and build homes, produce insulation, flooring, paint and furnishings. They even stock the pantries and closets — and clothe the occupants.

In addition, Berkshire entities distribute food and other items to groceries, truck stops and convenience stores; produce the ingredients for baby shampoo and other household goods; and insure millions of drivers and deliver regional news.

With more than 360,000 workers in operations as vast as manufacturing, retail, insurance, financial services, railroads and energy, Berkshire subsidiaries produce the components, goods and services that help drive the engine of American commerce.

This gives Buffett a unique view on the health of the American economy, which he has said is growing more quickly than in the recent past. He recently told CNBC that business activity is "stronger than it's been. It's been improving year after year after the financial panic [of 2008]."

He has talked about the ways American ingenuity and resourcefulness have improved the lives of the middle class. Those improvements have given them options in education, medicine, travel and entertainment that weren't accessible but by the very rich only a couple of generations ago.

"We've got something that works," he said in a Fortune interview last year. "I believe, and I think this has been borne out over 240 years, that this country gets better all the time."

Buffett Quotes
If America did well, American business would do well.
Warren Buffett

Much of this optimism is put on display at the Omaha company's annual meeting, including a vast exhibit hall where Buffett holds court each year, often with a Dairy Queen product in hand.

Shareholders are invited to shop the booths at the convention center, but also around town for candy at See's, jewelry at Borsheims and furniture at Nebraska Furniture Mart.

Buffett's investing advice sticks close to home — something he said he learned as a boy growing up during World War II.

"All you had to do was figure that America was going to do well over time, and if America did well, American business would do well," he told shareholders at Saturday's annual meeting. "You didn't have to pick winning stocks. You basically had to make one investment decision in your life."

For Buffett, one decision he made in 1964 would catapult him to fame. He found a beaten down textile maker with a stock so cheap it seemed like a safe bet to buy.

His plan was to tender it back to the management for a profit. He thought he had a deal with them, but then management tried to extract a tiny bit more than he was willing to give — making him mad enough to buy the rest of the company.

That's how he ended up with Berkshire Hathaway, a fading manufacturing business that would become the basis of a far-reaching conglomerate with a market capitalization of $486 billion (making it the sixth-largest stock) and a compounded annual gain since then of 19.1 percent.

Berkshire shares have skyrocketed, from less than $10 per share back then, to $292,600.

The Coca-Cola booth at the 2018 Berkshire Hathaway Annual Shareholder's Meeting in Omaha, NE, on May 5, 2018.
David A. Grogan | CNBC

Over the years, Berkshire has rolled up leading positions in a myriad of sectors across its 63 operating subsidiaries.

In 2009, in its biggest deal yet, it acquired the rest of Burlington Northern Santa Fe railroad it didn't already own, the second-largest freight line in the U.S. It also took on Geico, now the second-largest auto insurer. It also owns nearly one-third of packaged food giant Kraft Heinz.

Buffett has also ridden to the rescue more than once, injecting money into Goldman Sachs, Bank of America and General Electric to help them navigate the financial crisis. The billionaire also took on an active role in managing Salomon Brothers in the late 1980s, after a scandal involving rigged Treasury bond auctions.

The company's $170 billion portfolio of stock holdings doubles down on Buffett's America-focused bet, specifically on consumers, whose spending makes up more than two-thirds of the U.S. economy.

Berkshire holds large stakes of lenders (like M&T Bank), household product makers (such as Gillette), food and beverage companies, communications and travel providers and the quintessential American gadget maker, Apple. Its five biggest holdings are Wells Fargo and Bank of America, Apple, Coca-Cola and American Express.

Over his career, Buffett developed his buy-and-hold investment style inspired by Benjamin Graham. Berkshire's longest-held stock investment is American Express, which it began buying in the 1960s, building up to a 17 percent stake currently.

More recently Buffett has changed his mind about airlines, taking on sizable stakes in four of the nation's largest carriers, while exiting stakes in former American industrial stalwarts General Electric and IBM.

And though he admits he regrets missing out on Amazon and Google parent Alphabet, his recent embrace of Apple shows Buffett is closely watching for the next big opportunity.

"This game of economic miracles is in its early innings," Buffett wrote in an essay that appeared in Time magazine earlier this year. "Americans will benefit from far more and better 'stuff' in the future."