Berkshire Hathaway Fits the Buffett Good Business Standard

According to Warren Buffett, Good Business has:

An ability to increase prices rather easily (even when product demand is flat and capacity is not fully utilized) without fear of significant loss of either market share or unit volume.

An ability to accommodate large dollar volume increases in business (often produced by inflation than by real growth) with only minor additional investment of capital.

Low cost provider (in enormous market place).

Hmm… this sounds like Berkshire Hathaway (BRK.A),(BRK.B)!

In a recently published article, Bloomberg mentioned that:

Harrah's Entertainment Inc. (HET), the world's biggest casino company, is paying 50 percent more for property insurance because Warren Buffett's Berkshire Hathaway Inc. is one of its only options after last year's hurricanes.

Buffett's prices are as much as 20 times higher than the rates prevalent a year ago.

"Every major account I've placed, those with half a billion dollars or more of coverage, had Berkshire involved,'' Bullock said. "That was not the case prior to this year. They were not on any of those placements.''

Most insurance companies do not have competitive advantages over one another, except being a low-cost provider. Berkshire, on the other hand, has many competitive advantages… low cost provider (GEICO), AAA rating, ability to increase prices, and the best investment managers (Buffett, Munger, Simpson).

Without doubt, Berkshire Hathaway, is a Good Business by Buffett Standard.

Comments

[bobbyjoe]

Buffett is spelled incorrectly in the title...

[JonathanLiss, SAEditor]

thanks for pointing that out Jordan - I have fixed it

[bobbyjoe]

A competitive advantage is NOT the ability to increase prices, etc etc. The ability to increase prices is a sign that a competitive advantage exists!

The excess property insurance operations you are talking about (at Berkshire) have a major competitive advantage -- capacity.

When you get into the low severity high frequency insurance (that's Geico) then there's a different competitive advantage. Geico's product is a commodity. In that case, Berkshire leverages the brand and network to write huge volumes. I would suggest that Geico's selling model and brand makes up the competitive advatange. This enables low cost operations.

"Most insurance companies do not have competitive advantages over one another"
I have to disagree with this also. The ability to differentiate varies significantly depending on the type of insurance being written (and the extent to which the coverage has been commoditized).

Lastly, Berkshire is Buffett's company so it should come as no surprise that Buffett thinks it comprises good businesses.