Berkshire Hathaway Retains Strong Competitive Advantage

Warren Buffett will soon be fielding questions at Berkshire Hathaway’s annual meeting, but equity analysts say there is little for investors to be concerned about

Greggory Warren, CFA 30 April, 2014 | 12:33AM

While the golden age of conglomerates has long since departed the corporate landscape, a few vestiges of this type of operating model continue to this day. Conglomeration as a business strategy emerged during the post-war period and thrived on a period of rising stock markets and a changing regulatory environment, in which more traditional methods of expansion by acquisition—namely, those involving vertical and/or horizontal integration—fell out of favour.

During the Sixties and Seventies, the greatest period of growth for conglomerates, these firms combined different companies from completely unrelated industries under the belief that the diversification created by the transactions would protect the overall entity during periods when one or more of the businesses was struggling. That, unfortunately, proved not to be the case for many conglomerates, and by the Eighties we saw a wave of de-conglomeration, with a gradual return to specialization among many corporations. This movement was enhanced somewhat by a changing regulatory environment that came to support the takeover and ultimate breakup of some of the largest conglomerates that had been created during the preceding two decades.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Berkshire Hathaway Inc Class A347,000.00 USD0.09
Berkshire Hathaway Inc Class B231.35 USD0.14
General Electric Co10.88 USD2.64

About Author

Greggory Warren, CFA  Greggory Warren, CFA, is a senior stock analyst with Morningstar.

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