Chapter 8: Berkshire's First Fifty Years 1965-2014
The Complete Financial History of Berkshire Hathaway | Adam J. Mead | ISBN: 978-0-85719-912-6
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Chapter 8 is Mead stepping back from year-by-year reporting to tell the whole Buffett story in one sweep. The opening Buffett quote sets the tone: “It is not necessary to do extraordinary things to get extraordinary results.”
That is the thesis. Berkshire’s transformation from dying textile mill to Fortune 500 giant was not magic. It was ordinary principles applied relentlessly for fifty years.
From textile mill to number four on the Fortune 500
In 1965, Berkshire did not make the Fortune 500. By 2014 it ranked fourth, behind Walmart, Exxon Mobil, and Chevron, ahead of Apple.
Buffett gets the credit, but Mead gives Charlie Munger equal billing. Munger’s blueprint was simple: stop hunting fair businesses at wonderful prices. Buy wonderful businesses at fair prices.
The company also needed hundreds of family owners, thousands of employees, and patient shareholders. Berkshire is an amalgamation of all of them.
Five decades, five different companies
Mead breaks the fifty years into five ten-year blocks. The numbers tell the story faster than any narrative:
1965-1974: National Indemnity and See’s Candies reshape everything. Textiles shrink from 100% of the business to about 30% of revenue. Book value per share up 363%.
1975-1984: Insurance scales, GEICO stake acquired, Blue Chip Stamps and Buffalo News added. Revenues up 618%. Investment gains drive 58% of net worth growth this decade.
1985-1994: Berkshire hits its stride. Coca-Cola, Scott Fetzer, reinsurance expansion. Float up 1,108%. Textiles finally shut down in 1986. Dexter Shoe and Salomon drama mark the mistakes.
1995-2004: GEICO and Gen Re completed the insurance empire. MidAmerican sets up the utility platform. Dot-com bubble ignored. Float hits $45 billion. Cash piles up to $40 billion by 2004 because deals cannot move the needle fast enough.
2005-2014: BNSF, Lubrizol, Iscar, Marmon, Heinz. Operating earnings drive 70% of equity growth. Book value per share growth slows to 162% for the decade. Size becomes the enemy of percentage returns.
Insurance float: the rocket fuel
Mead calls float the single most important growth driver. Berkshire was in insurance 48 of its first 50 modern years. For 27 of those years, the cost of float was negative. In only eight years did Berkshire’s insurance funding cost more than long-term government bonds.
The underwriting profit timeline is wild:
- 1968-1974: ($5 million) loss
- 1975-1984: ($93 million) loss
- 1985-1994: ($285 million) loss
- 1995-2004: ($3.2 billion) loss
- 2005-2014: $21.3 billion profit
Berkshire lost money underwriting for decades while learning the business. Then it figured it out just as float got enormous. That combo (big float, cheap or profitable funding) is the engine.
Concentrated bets, patient opportunism
Each decade’s biggest capital decision was at least 15% of equity at the time. Berkshire made large partial stakes via stocks and bought progressively bigger whole companies. The Big Four stocks were 59% of the portfolio by 2014.
Mead charts going-in returns on acquisitions over time. Early deals like See’s, Scott Fetzer, and Fechheimer came cheap. Later deals like Lubrizol and Heinz paid for quality. The market got more efficient. Berkshire adapted by accepting lower initial returns on better businesses.
The self-forged anchor
Success created its own problem. Retaining earnings made Berkshire too big to find enough great opportunities. Buffett said it plainly in his 2014 letter: percentage gains cannot stay dramatic. The numbers are too large. Berkshire will still beat the average company, but the edge shrinks.
Trailing ten-year outperformance over the S&P peaked around 20% in the early 1980s and fell toward single digits by 2014.
Seven lessons Mead pulls out
- Circle of competence: Stay in businesses you understand.
- Business focus: Whole companies, stocks, and bonds are all the same game: own good economics long term.
- Conservatism: Over-reserved insurance losses, minimal leverage, no blow-up risks.
- Opportunism: No grand plan. Compare each new deal to what you already own.
- Concentration: Big bets when odds are right.
- Conglomerate structure: Move capital tax-free, offer permanent homes to sellers.
- Autonomy: Let managers run their businesses. Scale without bureaucracy.
Why this chapter matters in the series
After thirty-plus posts of annual detail, Chapter 8 is the map. You see which decisions actually mattered (National Indemnity, See’s, GEICO, Gen Re, BNSF) and which were footnotes (textiles, Dexter).
It also sets up the final chapters. If fifty years of compounding hit a ceiling in 2014, what happens in 2015-2019 and after Buffett? Mead has already told you the constraint. Now he tests whether the machine keeps working anyway.
← Prev: Chapter 7 Part 5: 2014 and Decade Review | Next: Chapter 9 Part 1: Berkshire 2015-2016 →