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The Case Against Conglomerates

Posted by Paul McCann on Wed, Dec 30, 2009 @ 10:12 AM
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Conglomerates are companies that either partially or fully own a number of other companies. Sprawling conglomerates were once a prominent feature of the corporate landscape. Vast empires, such as General Electric (NYSE: GE) and Berkshire Hathaway (NYSE :BRK.A), were built up over many years with interests ranging from jet engine technology to jewelry. Corporate hodgepodges like these pride themselves on their ability to avoid bumpy markets.

The case for conglomerates can be summed up in one word: diversification. According to financial theory, because the business cycle affects industries in different ways, diversification results in a reduction of investment risk.

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