Warren Buffett’s Berkshire Controls Stock Buying, Records $43.8 Billion Loss

Warren Buffett’s Berkshire Hathaway sharply slowed new investment in the second quarter after setting a breakneck pace earlier in the year, when the US stock market sell-off pushed the rail-insurance conglomerate into a $43.8 billion loss.

Berkshire said on Saturday that the slump in global financial markets had hit its stock portfolio hard, with its value falling to $328 billion from $391 billion at the end of March. The $53 billion recorded loss in the three months through June far outpaced an upbeat quarter for its businesses, which improved their profitability.

The company’s filing with US securities regulators showed its purchases of new shares dipped to about $6.2 billion in the quarter, down from $51.1bn spent between January and March, a streak that surprised Berkshire shareholders. Berkshire sold $2.3 billion of shares in the last three-month period.

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

The 91-year-old investor told the company’s annual meeting in Omaha in April that the wave of multibillion-dollar stock purchases would likely slow as the year progressed, saying the atmosphere at the company’s headquarters had become more “lethargic”.

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

Berkshire’s mammoth Cash and Treasury holdings were little changed from late March, falling less than $1 billion to $105.4 billion.

While net income slipped from a $5.5 billion profit at the start of the year to a $43.8 billion loss, operating income, which excludes the ups and downs of Berkshire’s stock positions, rose 39 percent to $9.3 billion. . That included a $1.1 billion currency-related gain on its non-US dollar-denominated debt.

Berkshire must include fluctuations in the value of its stock and derivatives portfolio as part of its earnings each quarter, an accounting rule that Buffett warned can make the company’s earnings figures appear “extremely misleading” and volatile.

The loss amounted to $29,754 per class A share. This contrasts with a profit of $18,488 per share that the company reported a year earlier.

Line chart of year-to-date performance (%) showing that Berkshire has outperformed the US stock market overall this year

Berkshire’s results are being scrutinized by analysts and investors for signs of the health of the US economy as a whole, as its businesses encompass much of the country’s industrial and financial heartland.

Inflationary pressures continued to affect, although many of its divisions were able to pass on higher prices to customers. Railroad BNSF, which Buffett has described as one of the “four giants” within Berkshire, reported a 15 percent rise in revenue as fuel surcharges it imposed on customers offset a drop in shipping volumes. . Fuel costs for BNSF, which has more than 32,500 miles of rail in 28 states, are up more than 80 percent year over year.

Insurance unit Geico posted a pretax technical loss of $487 million in the quarter, compared with the previous three months. The division blamed much higher prices for new cars and the auto parts it must pay for when its customers are involved in accidents for the biggest loss.

Buffett said in April that the company was seeing the effects of inflation firsthand, warning that “it rips off just about everyone.”

Berkshire housing businesses, including modular home unit Clayton Homes and home d├ęcor retailer Nebraska Furniture Mart, offered clues as to how consumers were responding to higher prices and higher mortgage rates. Furniture sales were relatively flat, with higher prices offsetting lower orders.

However, there were signs of strength in the housing market, with Clayton new home sales rising 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 from a year earlier.

“Increases in mortgage interest rates are very likely to decrease demand for new home construction, which could adversely affect our businesses,” Berkshire warned. “We also continue to be negatively affected by persistent supply chain disruptions and significant cost increases for many raw materials and other inputs, including energy, freight and labor.”

Berkshire addressed a potential conflict raised at the company’s annual meeting earlier this year. In June, he spent $870 million to buy shares that Berkshire Vice Chairman Greg Abel, Buffett’s anointed successor, held directly in Buffett’s energy unit.

Abel joined the company in 2000 when Berkshire acquired utility company MidAmerican Energy, and had some of his wealth in that business rather than in stock in Berkshire’s parent company.

Berkshire Hathaway’s class A common stock has fallen about 2 percent this year, outpacing the 13 percent drop in the benchmark S&P 500 index.

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