Most of Berkshire Hathaway's Profit Comes From Businesses It Owns Outright, Not Stocks It Holds

You may know Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) best by its stock picks. And it has a portfolio worth watching to be sure. That's not all it is, though. That's (usually) not even its biggest source of profits.

Rather, the bulk of Berkshire's bottom line typically comes from its wholly owned private businesses. Here's a closer look.

Cash cows, even when stocks are underperforming

You rarely hear about these companies just because they're all relatively small, and there are just so many of them. You'll certainly recognize the names, though. Duracell batteries, Clayton Homes, Pilot travel centers, Shaw flooring, Fruit of the Loom, GEICO insurance, and Dairy Queen are just a few of the several dozen reliable brands and businesses Berkshire owns.

Image source: Getty Images.

These two different kinds of profit centers require different reporting, too. As the snapshot of the conglomerate's Q2 operational results below illustrates, in addition to the net gains or losses (realized and unrealized) on its stock investments, Berkshire Hathaway discloses the net operating earnings generated by each of its owned businesses. For instance, about half -- almost $13 billion -- of last quarter's reported total bottom line of nearly $25.7 billion was the cash that its privately held outfits collectively contributed.

Image source: Berkshire Hathaway Q2-2026 report.

And this snapshot shows us something else. That is, while the conglomerate's quarterly investment gains ebb and flow in step with the broad market's, its privately owned entities are reliable cash cows regardless of the market environment, and for that matter, the economic environment.

This is no trivial detail, either. The fact that former CEO Warren Buffett could and current CEO Greg Abel can count on this consistent cash flow even when stocks are underperforming makes it much easier to remain patient with its volatile publicly traded holdings. That's something the average investor often can't do. Fear easily becomes too overwhelming when much of your fortune is tied up in stocks, prompting you to sell at the exact wrong time to do so. Berkshire's chiefs don't have this fear.

You can do something similar

Most investors can't own private businesses outright and pocket whatever cash flow they generate each quarter. Even most private equity investments readily available to ordinary investors are packaged as publicly traded instruments with ever-changing prices that can and do dip with the market.

You can still recreate something similar for your portfolio, though. A collection of bonds (particularly at recently higher interest rates), high-yielding stocks -- maybe preferred stocks -- and dividend stocks with a strong track record of dividend growth could do something similar, generating reliable cash flow to offset the temporary setbacks your growth investments will occasionally experience. Just make sure you're not reinvesting these payments if that's your plan, so this cash is accessible when you find the right opportunity to deploy it.

Also, be realistic with your expectations. While Berkshire's privately held companies are on pace to generate roughly $50 billion in net operating earnings this year, these businesses also account for about one-third of Berkshire Hathaway's total market cap. That's an implied valuation of $380 billion for these wholly owned enterprises, translating into an operational (and pretax) earnings yield of 13%. That's respectable, but hardly jaw-dropping net operating cash production.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.