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Warren Buffett Becomes 2nd-Richest As Berkshire Hits Record High
Aspire, Thought Leaders | 09 December 2014
By: Simeon Ang
Articles (125) Profile

The Oracle of Omaha, Warren Buffett has officially become the second richest person in the world on Friday, 5 December 2014 as shares in Berkshire Hathaway hit a record high. Both classes of Berkshire shares (Class A and B) have risen by close to 30 percent since the beginning of this year.

Source: FactSet. Chart comparing the returns of Berkshire Class B shares (Blue) and the returns of S&P 500 (Green)

A bump in the prices of both classes of shares was seen in August when Warren Buffett sent out his yearly letter to shareholders. In it, he mentioned that “Berkshire’s intrinsic value far exceeds its book value”. He also said that in recent years, the difference between the two values have widened “considerably”.

With the jump in Berkshire share prices, Warren Buffett now sits in second place in the world’s richest persons ranking, after overtaking the previously second ranked, Carlos Slim by about US$300 million. Warren Buffett’s fortune is now currently estimated to be worth US$73.7 billion.

Warren Buffett (Right) has overtaken Mexican billionaire, Carlos Slim (Left) in the world's richest person ranking list.

Berkshire Acquisition Spree
In the second half of 2014, Berkshire Hathaway has been on an acquisition spree. In October, the company announced that it would buy Van Tuyl Group, the largest closely held US automotive dealer for an undisclosed amount. More recently, the company agreed to buy Durecell Batteries from Procter & Gamble for US$4.7 billion. Earlier this year, Berkshire bought a US TV station from Graham Holdings after holding shares in the company for more than 40 years.

Aside from pure acquisitions, Berkshire has plans to provide US$3 billion to Burger King Worldwide Inc. as the fast food chain plans to take over Tim Hortons Inc. Berkshire is expected to earn 9 percent annual interest on this financing deal should it go through.

A Fortress
In an email on Friday, Warren Buffett’s biographer, Andrew Kilpatrick said that “the all-time closing high stock price today (Friday, 5 December 2014) is due to a widening appreciation of what Berkshire really is, a fortress.” No doubt, shareholders’ appreciation of the company’s investment philosophy has widened.

A recent case study made by Berkshire’s US$26.5 billion purchase of railroad BNSF attests to this same philosophy. The investment was made during the height of the Great Recession of 2008/2009. It is now on track to pay itself by the end of this year. The railroad business has been buoyed by an onshore oil boom as it paid more than US$15 billion in dividends to Berkshire as at 30 September 2014.

Expansion In Singapore
Separately, Berkshire’s business insurance unit has received a license to sell insurance in Singapore. This is part of the company’s push into the Asian insurance space. The company has been hiring higher-level executives from AIG and others to help it expand in the commercial insurance space in Asia. Warren Buffett was quoted as saying that Berkshire intends to “build a very, very significant commercial insurance operation over time. That operation will operate with better underwriting results than competitors”.

According to a statement from Berkshire Hathaway Specialty Insurance, the unit will offer commercial property, casualty, financial lines, marine, energy and construction coverage in Singapore. The business unit intends to distinguish itself from other insurance providers with higher coverage limits as well as the backing of one of the strongest balance sheets in the world.

Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

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