Omaha-based Berkshire Hathaway under Chairman and Chief Executive Warren Buffett has been a remarkable investment over the years. It’s also been one that has changed dramatically over those same years.

The company’s loyal investors probably look to the gain over the Standard & Poor’s 500 — a gain that has outstripped the benchmark stock index in per-share market value by more than double since 1965. Since then, the S&P gained an annual average of 10 percent through 2014, versus 22 percent for Berkshire Hathaway’s per-share market value.

But how has that been done? A tale for the ages.

In 1977 — the first year that Buffett’s now famed annual letter to shareholders is available on the company’s website — the largest single contribution to operating earnings was from a small Illinois bank. The amount was $3.7 million in 1977 money.

Fast forward to 2014, and the biggest contributor was BNSF Railway, the nation’s largest railroad, for which Buffett paid $44 billion in 2010. In 2014, BNSF made $3.8 billion — a thousand times more than Illinois National Bank & Trust did in 1977. One thousand times more in a little less than 40 years.

Buffett, 85, has called BNSF an irreplaceable asset that he was more than happy to overpay for, an example of his newfound philosophy of forgetting about underrated smallies with some juice left in them in favor of Big Elephants. Those are the huge companies capable of moving the needle at a Berkshire now with $195 billion of annual revenue from everything from lollipops to diamonds.

The change in who does what at Berkshire also explains another major development at the owner of dozens of operating subsidiaries and a stock portfolio worth $117 billion. (The company also owns this newspaper.)

It started out in the 1960s as an owner of New England textile mills after Buffett closed his private investment partnership and branched into the realm of publicly traded companies with the mill purchases. The business was capital intensive, warm to Buffett’s heart, but ultimately a money loser as the industry moved overseas in search of cheaper wages and lower costs.

Then, the Omaha-born chairman, who is the son of a Nebraska U.S. representative from the 1940s and 1950s named Howard Buffett, discovered insurance. Why insurance? A simple business, but one with a huge advantage for a man like him.

Insurance companies collect premiums from customers and don’t pay the money out until — or if — someone has an accident. In the meantime, the insurance companies keep the dough and can invest it.

So Berkshire began acquiring insurance companies such as Geico and National Indemnity. For years, Buffett used that insurance premium money — called “float” in the biz — to buy stock in other companies. It started small, such as with Geico itself, a stake bought for about $20 million in 1977.

Investing in others was a major deal at Berkshire as Buffett feasted on the insurance float that surged from little in 1977 to almost $100 billion now. Coca-Cola. IBM. ABC Capital Cities — many of the world’s blue chips at one time or another have been in the company portfolio of marketable securities.

Then things changed again — not that Buffett ever stopped looking for promising stocks — but the alteration of philosophy was clear.

Berkshire Vice Chairman Charlie Munger told Buffett a few years ago to quit looking for “cigar butts” — undervalued companies in the stock market that fit his value-investing style learned in the late ’40s at Columbia University from professor and professional money manager Ben Graham.

Confidant and fellow ace investor Munger told Buffett to hunt for the big game — major companies with a legal monopoly that the cash-rich Berkshire could buy and own outright.

Now, Berkshire is a conglomerate of operating companies worth billions. It owns companies that make cowboy boots and airline-pilot training systems. It owns companies that make bricks, chemicals and mobile homes. It employs close to 400,000 people.

Illinois National Bank & Trust? It disappeared from Berkshire in the 1980s in a share exchange with Buffett’s company.

It was started in 1931 with $250,000 of capital — about what Berkshire and its many operating companies now collect in revenue about every hour of every one of the 365 days of the year.

Contact the writer: 402-444-3197,

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