This stock just joined Apple, Nvidia, and Microsoft in the $1 trillion club — and it’s the first of its kind to do so

In recent years, some of the largest companies in the world, including Apple, Nvidia, Microsoft, Alphabet, Meta platformsand Amazonhave crossed the $1 trillion market capitalization mark.

These companies have all used technology to achieve staggering growth. The same cannot be said for a company that passed the $1 trillion mark on August 28 — Warren Buffett’s conglomerate, Berkshire Hathaway (BRK.A 0.83%) (BRK.B 0.81%).

Berkshire is a company in the financial sector and is the first to reach this milestone. That’s a testament to Buffett’s investment prowess and Berkshire’s solid business model, which underpins a cash-generating machine that has rewarded investors handsomely over the long term.

Image source: The Motley Fool.

Berkshire’s patient approach to investing

Buffett is a legend in the investment world and deservedly so. Since becoming chief executive of Berkshire Hathaway in 1965, Buffett’s company has delivered an impressive 19.8% compounded annual return to investors. In other words, $1,000 invested in the conglomerate the day Buffett took it over would be worth $57 million today.

There are many reasons why Buffett is one of the best investors ever. Buffett takes a long-term approach and focuses on investing in high-quality companies with high-integrity management teams. He also takes an extremely patient approach, riding out tough times and going in and buying “great companies at good prices” when the time is right.

Its subsidiaries are cash generating machines

Berkshire’s public stock portfolio isn’t the only area where it shines. The conglomerate owns subsidiaries in various industries, including insurance, transportation, utilities, energy, manufacturing, services and retail.

These businesses thrive because of Buffett’s relaxed approach to management, allowing his companies to “operate on their own without us overseeing and monitoring them in any way.” Because Buffett values ​​management integrity, Berkshire only invests in companies with management teams it can trust, as opposed to taking an active role in trying to reshape a company.

For this reason, when Berkshire takes a stake in a company, it tends to hold it for a long time. And if Buffett and his team like the company enough, Berkshire has the cash to acquire it. That’s what Berkshire did a few years ago when it spent $11.6 billion to acquire the Alleghany insurer, whose CEO previously ran Berkshire’s insurance arm, General Re.

This is the driving force behind Berkshire’s investment portfolio

With $77 billion in net written premiums, Berkshire Hathaway is the second largest insurance company in the US after State Farm. Last year, it earned $18.5 billion in profit from its insurance business. Its next businesses, manufacturing and railroads, earned $11.4 billion and $6.6 billion, respectively, in comparison.

What makes the insurance industry attractive to Buffett is the cash flow it generates. That’s because insurers operate a collect-now, pay-later model, according to Buffett, allowing Berkshire Hathaway to hold a large amount of cash, called float, that it can invest for its own benefit.

Berkshire Hathaway Free Cash Flow Data by YCharts.

As insurance policies and claims come and go, the floating value remains relatively stable as long as an insurance company writes profitable policies. Since 1967, Berkshire’s holdings have grown significantly, from $19 million to more than $169 billion at the end of last year. Berkshire’s growing flotation is a vital component of its success and a big reason why it consistently has a huge cash hoard.

At the end of the second quarter, Berkshire boasted $277 billion in cash, cash equivalents and short-term investments. This robust financial position allows Berkshire to capitalize on higher short-term interest rates and provides the flexibility to take advantage of attractive investment opportunities.

With this strategic advantage, Berkshire has become a company with a market capitalization of $1 trillion and is well positioned to continue to build on its excellent results over the long term.