August 15, 2022
Warren Buffett’s Berkshire loses .8 billion in stock purchases and books

Warren Buffett’s Berkshire Hathaway dramatically slowed new investments in the second quarter after setting a blistering pace at the start of the year, as a sell-off in the US stock market left the insurance-to-railroad conglomerate $43.8bn in losses. pushed.

Berkshire said on Saturday that the collapse in global financial markets had a huge impact on its stock portfolio, which fell to $328 billion from $391 billion at the end of March. In the three months to June, it posted a more than $53bn loss in an upbeat quarter for its business, improving its profitability.

The company’s filings with US securities regulators show that purchases of new shares declined in the quarter to nearly $6.2 billion, down from $51.1 billion spent between January and March — a jump that surprised Berkshire shareholders. . Berkshire sold shares worth $2.3 billion in the latest three-month period.

Berkshire spent $1bn in June to buy back its own shares, a tactic commonly used when Buffett and his investment team find less attractive targets in the market.

The 91-year-old investor indicated at the company’s annual meeting in Omaha, Nebraska in April that the pace of multibillion-dollar stock purchases is likely to slow as the year progresses, adding that the atmosphere at the company’s headquarters should be more Was “sluggish”.

Column chart of cash, cash equivalents and short-term treasuries held ($bn) showing Berkshire Hathaway's war chest

Investors will get a more detailed update on changes to Berkshire’s stock portfolio later this month, when the company and other big money managers disclose their investments to regulators. Separate filings show that the company has increased its stake in energy company Occidental Petroleum in recent months.

Little changed in Berkshire’s giant cash and Treasury holdings, falling from less than $1bn to $105.4bn since late March.

While net income fell from a $5.5bn profit at the start of the year to a loss of $43.8bn, operating income – which did not include the volatility of Berkshire’s stock positions – rose 39 percent to $9.3bn. This included a $1.1bn monetary gain on its non-US dollar debt.

Berkshire is required to include swings in the value of its stock and derivatives portfolio as part of its earnings each quarter, an accounting rule that Buffett warned could make the company’s earnings figures “extremely misleading” and look volatile. Huh.

The loss amount was $29,754 per Class A share. This is in contrast to the $18,488 per share profit the company reported a year ago.

Line chart showing Berkshire's year-over-year performance (%) has outpaced the broader US stock market this year

Berkshire’s results are parsed by analysts and investors for signs of the health of the broader US economy, as its businesses cut across much of the industrial and financial heart of the country.

The bite of inflationary pressures continued, although many of its divisions were able to pass along higher prices to customers. BNSF Railroad, which Buffett describes as one of the “four giants” within Berkshire, reported a 15 percent increase in revenue as fuel surcharges imposed on customers offset a drop in shipping volumes. Fuel costs for BNSF, which has more than 32,500 miles of rail tracks in 28 states, have increased more than 80 percent year over year.

Insurance arm Geico reported a $487mn pre-tax underwriting loss in the quarter, up from three months ago. The division has attributed large losses to new cars and auto parts at very high prices that its customers will have to pay when they are involved in accidents.

Buffett said in April that the company was looking at the effects of inflation for the first time, warning that it “cheated almost everyone”.

Berkshire’s housing businesses, including modular home unit Clayton Homes and home decor retailer Nebraska Furniture Mart, gave hints about how consumers are reacting to higher prices and increased mortgage rates. Furniture sales were relatively flat, with higher prices offsetting fewer orders.

Still, there were signs of strength in the housing market, with Clayton’s new housing sales up 9.8 percent in the first half of the year. Revenue for the division rose 28 percent to $3.4 billion in the second quarter from a year ago.

“A rise in home mortgage interest rates will greatly slow demand for new home construction, which could adversely affect our businesses,” Berkshire warned. “We continue to be negatively impacted by continued supply chain disruptions and significant cost escalations for many raw materials and other inputs, including energy, goods and labor.”

Berkshire addressed a potential conflict raised at the company’s annual meeting earlier this year. In June it spent $870mn to buy shares, which Berkshire vice president Greg Abel, Buffett’s anointed successor, held directly in its energy unit.

Abel joined the company in 2000 when Berkshire acquired utility MidAmerican Energy, and Berkshire kept part of its assets in that business instead of shares in the parent company.

Berkshire Hathaway’s Class A shares have fallen nearly 2 percent this year, outperforming the benchmark S&P 500 by 13 percent.

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