Stansberry Research’s Approach to Berkshire Hathaway Investments

Stansberry Research is a leader in providing well-researched investment guidance to individuals who wish to manage their own investment portfolios. As such, they take great pride in researching and analyzing companies and investments thoroughly to understand past successes and mistakes in the industry. For the average onlooker not well versed in finance or business, the success and growth of Berkshire Hathaway are mythical. Warren Buffett’s ability to amass such wealth consistently over time gives Berkshire Hathaway the reputation of a virtual investment dragon with impenetrable skin. But as experts in investing, once Stansberry Research took a closer look, it found that there are vulnerable areas due to some relatively recent changes in the investment principles of Buffett. To understand fully where these vulnerabilities lie, you must first understand what made Berkshire Hathaway so successful (http://releasefact.com/2018/03/stansberry-research-on-walmart-stock/).

The first thing an investor must have is capital or access to it. If there is no capital, you can not invest and earn returns on that capital. In the 1960s, Warren Buffett found an excellent source of capital – insurance companies. Each insurance companies holds float – the premiums it is paid by its customers that have not yet been paid out for claims. Based on Stansberry Research, by acquiring insurance companies, Warren Buffett gained access to this float. As long as the insurance companies are well run and its customers continue to pay premiums Buffett was able to use this float as capital for his investments. When starting out, Buffett used the float from his insurance companies to invest in highly successful stable companies. By buying into the most successful companies in the world, Buffett was able to create a money-making machine. With the acquisition of more insurance companies, he gained access to more float giving him more money to invest in these virtual institutions Berkshire Hathaway into what it is today.

However, in recent years Buffet began to invest in companies in need of capital, better management or that are heavily regulated. These companies are very different from the American Express and McDonald’s investments Buffett had made previously. With the inclusion of these companies in the Berkshire Hathaway portfolio, Buffett began to see his returns decreasing. This change in investment strategy is a big mistake and can ruin the impressive run Buffett has held onto over the years.

 

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