Does BRK.B's Cost Control Structure Create Sustainable Investment Moats?

Berkshire Hathaway BRK.B stands out as a multi-business conglomerate that strategically manages operational overhead to preserve profitability. The company’s decentralized operational model enables subsidiary-level autonomy while maintaining disciplined expense controls. This organizational approach has proven effective at keeping selling, general, and administrative (SG&A) expenses proportionate to scale—a key indicator of how well a business protects its investment moats.

The SG&A Story: Growth Without Margin Squeeze

Berkshire’s SG&A expenses grew 31% over the past two years, reflecting the company’s business expansion. Yet when measured against revenue (6-7%) and total operating costs (7-8%), the expense ratio has remained remarkably stable. This suggests that while absolute costs rise with scale, Berkshire maintains the financial discipline necessary to defend operating margins.

The nuance matters for investors: absolute expense growth doesn’t necessarily signal operational inefficiency if revenue grows proportionally faster. In Berkshire’s case, the stable SG&A percentage implies that new business acquisitions and organic growth are not diluting profitability—a hallmark of durable competitive advantages.

Why SG&A Matters Less Than Expected

Here’s where Berkshire’s business mix becomes critical. The company’s insurance operations—historically its profitability engine—don’t carry traditional SG&A expenses in the same way. Instead, Berkshire’s insurance segment generates underwriting profits and deployment capital that management deploys into value-creating investments. This structural feature means that SG&A cost control, while important for manufacturing and retail divisions, has minimal impact on consolidated earnings.

The railroad, utilities, and energy operations similarly operate outside the SG&A metric, making the expense ratio less relevant to overall profitability assessment than in typical industrial companies.

Competitor Benchmarking: Expense Discipline Varies

Among major property and casualty (P&C) insurers competing with Berkshire, cost management separates winners from laggards. Progressive Corporation PGR, a leading auto insurer, demonstrates how underwriting expense control translates into competitive pricing power and sustainable growth. When Progressive tightens cost management, underwriting gains expand, allowing the company to gain market share without sacrificing profitability.

Allstate Corporation ALL, another top personal lines player, operates under similar dynamics. Effective expense management strengthens underwriting margins, stabilizes earnings and creates shareholder value—yet Allstate’s track record shows that execution consistency remains elusive.

Berkshire, by contrast, has embedded cost discipline into its culture across decades, giving it a structural advantage over peers who must constantly battle expense creep.

Market Reality Check: Valuation and Momentum

BRK.B shares have appreciated 12.9% year to date, outperforming broader benchmarks. However, valuation remains elevated at a price-to-book ratio of 1.58, slightly above the industry median of 1.54. This premium pricing suggests the market has already factored in Berkshire’s operational efficiency and investment moats.

Recent earnings estimate revisions tell a more cautious story. Fourth-quarter 2025 EPS estimates have declined 15.8% over the past week, while full-year consensus estimates remain flat. This suggests analyst uncertainty about near-term earnings trajectory despite the stock’s strong year-to-date performance.

The Bottom Line

Berkshire’s ability to manage SG&A expenses relative to its sprawling business empire reinforces investor confidence in operational discipline. Yet with valuation already pricing in the company’s competitive strengths and earnings momentum showing signs of deceleration, current shareholders should temper expectations for outsize gains.