Warren Buffett’s Berkshire dominates stock purchases and loses $43.8 billion
Warren Buffett’s Berkshire Hathaway slowed new investment significantly in the second quarter after setting a brisk pace at the start of the year, as US stock market sell-offs drove the railroad insurance conglomerate to a $43.8 billion loss.
Berkshire said on Saturday that the downturn in global financial markets severely affected its stock portfolio, which fell to $328 billion from $391 billion at the end of March. Booked losses of $53 billion in the three months to June far outpaced the optimistic quarter of its business, improving its profitability.
The company’s filing with US securities regulators showed its purchases of new stock dwindled to about $6.2 billion in the quarter, down from the $51.1 billion it spent between January and March — a boom that surprised Berkshire shareholders. Berkshire has sold $2.3 billion of stock in the last three months.
Berkshire also spent $1 billion buying back its stock in June, a tactic commonly used when Buffett and his investment team found less attractive targets in the market.
The 91-year-old investor noted at the company’s annual meeting in Omaha in April that the multibillion-dollar stock-buying spree is likely to slow as the year progresses, saying the atmosphere at the company’s headquarters has become more “sluggish.”
Investors will get a more detailed update on how Berkshire’s stock portfolio will change later this month, when the company and other big money managers reveal their investments to regulators. Separate files show that the company has increased its stake in energy company Occidental Petroleum in recent months.
Berkshire’s massive cash and treasury holdings have not changed much since the end of March, dropping less than $1 billion to $105.4 billion.
While net income fell from a profit of $5.5 billion at the start of the year to a loss of $43.8 billion, operating income — which excludes the rise and fall of Berkshire stock positions — rose 39 percent to $9.3 billion. This included a currency-related gain of $1.1 billion on its non-dollar debt.
Berkshire is required to include fluctuations in the value of its portfolio of stocks and derivatives as part of its earnings each quarter, an accounting rule Buffett cautioned that would make the company’s earnings numbers look “extremely misleading” and volatile.
The loss was $29,754 per Class A share. It contrasts with the $18,488 earnings per share the company reported in the previous year.
Berkshire’s results are being analyzed by analysts and investors for signs of the health of the broader US economy, as its business intersects with much of the country’s industrial and financial heart.
Inflationary pressures continued to emerge, even though many of its divisions were able to pass on higher prices to customers. Rail company BNSF, which Buffett described as one of Berkshire’s “four giants,” reported a 15 per cent increase in revenue as additional fuel surcharges it charged customers with offset lower freight volumes. Fuel costs for BNSF, which has more than 32,500 miles of railroad tracks across 28 states, jumped more than 80 percent year over year.
Geico’s insurance unit reported a pre-tax underwriting loss of $487 million in the quarter, an increase from the previous three months. The division blamed the biggest loss on the high prices of new cars and auto parts that it must pay when its customers get involved in accidents.
Buffett said in April that the company was seeing the effects of inflation firsthand, warning that “almost everyone is cheating.”
Berkshire housing companies, including modular home unit Clayton Homes and home décor retailer Nebraska Furniture Mart, offered hints about how consumers might respond to rising prices and increasing mortgage rates. Furniture sales have been relatively flat, with prices rising to offset lower orders.
However, there were signs of strength in the housing market, with Clayton’s new home sales up 9.8 percent in the first half of the year. The division’s revenue rose 28 percent to $3.4 billion in the second quarter of the previous year.
Berkshire warned that “increases in mortgage interest rates will likely slow the demand for new home construction, which could negatively impact our business.” “We are also adversely affected by ongoing supply chain disruptions and significant cost increases for many raw materials and other inputs, including energy, shipping and labor.”
Berkshire addressed a potential conflict raised at the company’s annual meeting earlier this year. In June, it spent $870 million to buy shares that Berkshire Vice President Greg Abel, Buffett’s designated successor, held directly in its power unit.
Abel joined the company in 2000 when MidAmerican Energy was acquired by Berkshire, and he kept a portion of his fortune in that business in place of stock in his parent company Berkshire.
Class A shares of Berkshire Hathaway are down about 2 percent this year, outpacing the 13 percent decline in the benchmark S&P 500.