Berkshire Hathaway Inc. (BRK-B – Free Report) Chairman and CEO Warren Buffett is a great role model if you want to be an astute investor. He has accumulated a fortune of more than $87 billion over his career after getting into the investing game pretty early.
Buffett’s investing style is quite simple. He uses a more qualitative approach in selecting companies that have stood the test of time. These companies have solid business models and have the ability to record significant growth. In other words, these companies have good earnings potential and are not concerned whether the market will recognize its worth. By the way, they also generate plenty of cash and provide dividends, which are indicators of a strong and sustainable business.
Let us, thus, focus on the Oracle of Omaha’s favored companies that are likely to make the most of the fourth quarter. Most of these companies belong to sectors such as financials, technology, communication services, and airlines.
Why Not Berkshire Hathaway?
Way back in 1962, Warren Buffett began acquiring stakes in Berkshire Hathaway after he figured a pattern in the price direction of its stock whenever the company closed a mill. Buffett acknowledged that the textile mill was losing money, which led him to expand into the insurance industry. The insurance business definitely paid off as evident from Berkshire’s staggering return of more than 800% since inception.
To top it, the insurance business should do well in the current fourth quarter. After all, policymakers under Chairman Jerome Powell unanimously decided to hike the federal funds rate by 25 basis points to 2-2.25% after the end of the two-day meet on Sep 26. The Fed has also signaled another hike in December and three more next year.
Needless to say, that insurer derives its investment income from investing premiums, which are received from policyholders in corporate and government bonds. Yields and coupons on these bonds rise in response to a rise in interest rates. This enables insurers to invest their premiums at higher yields and earn more investment income, expanding their profit margins.
