- Berkshire Hathaway reported a third-quarter net loss of $12.77 billion.
- Apple’s 12% drop during the quarter affected the company’s stock portfolio, valued at $350 billion.
- The company’s cash hoard rose to a record $157.2 billion, thanks in large part to Treasury holdings.
- The company continued to slow the pace of buybacks in the third quarter.
Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B) on Saturday reported its third-quarter earnings, which showed a net loss of $12.77 billion, but the company’s operating income rose 40.65% from to the same period of the previous year to 10.76 billion dollars.
Buffett did not address shareholders in a letter, but the company said the losses were caused by changes during the third quarter in unrealized gains that existed on the company’s equity investment holdings.
“The amount of investment gains/losses in a given quarter is generally meaningless and provides net earnings (losses) per share figures that can be extremely misleading to investors who have little or no knowledge of accounting rules,” the company said. company in a statement. .
Here are four other highlights from the company’s earnings.
Yields increase cash accumulation
Berkshire continued to expand its massive cash reserve to a record $157.2 billion, up from $147.4 billion in the second quarter.
The cash pile is largely invested in US Treasury bills, which recently rose to 5%. The company increased its Treasury bill holdings by 36% over the past year, which totaled $126 billion in the third quarter.
Berkshire is likely looking to capitalize on yields that exceed consumer inflation by more than 1 percentage point, as rising interest rates have made investments in Treasury bonds more attractive.
Buybacks continue to slow
Share buybacks declined in the third quarter, with $1.1 billion in buybacks. That’s down from $1.4 billion last quarter.
Investors will be watching how Buffett handles buybacks in the future, following a new tax law introduced by President Joe Biden’s administration.
Buffett defended buybacks in his 2022 annual letter, saying: “When you are told that all buybacks are bad for shareholders or the country, or particularly beneficial for CEOs, you are listening to an economic illiterate or a tongue-tied demagogue. silver”.
In the third quarter, the company repurchased more than 145,574 Class A and Class B shares.
Stock portfolio is affected
Apple (AAPL) stock was the biggest drag with a 12% drop during the third quarter, boosted by an alleged Chinese ban on the company’s flagship iPhone. Buffett’s large stake in Apple is equivalent to about 50% of Berkshire’s portfolio and the 12% loss was equivalent to a $20 billion loss, reversing a $26.6 billion profit in the previous quarter.
Berkshire’s other big holdings outside of Apple also took a hit along with the S&P 500, including Bank of America (BAC) and Coca-Cola (KO).
The Oracle of Omaha was seen building new stakes in American home construction companies, with a purchase of 6 million shares in DR Horton Inc. (DHI), with a total value of more than $726 million. Buffett also added more shares of Occidental Petroleum a week ago, meaning Berkshire now owns more than 25%.
Other notable changes in the SEC’s August 13F filing were a nearly 50% reduction in General Motors Co. (GM) holdings and a sale of 4 million shares of insurance firm Globe Life Inc. (GL), reducing the company’s stake to $275 million. of about 700 million dollars.
Another departure was a two-thirds reduction in Activision Blizzard’s merger arbitration, with Microsoft closing its acquisition in October.
Munger considers Japanese betting a gift from God
Buffett’s longtime investment partner Charlie Munger this week praised the firm’s bets on Japanese trading companies.
Berkshire increased its stakes in Itochu, Marubeni, Mitsubishi Corporation, Mitsui & Co. and Sumitomo in April to about 7.4% each. The company made the biggest bet in its history outside the United States, taking advantage when interest rates were low to obtain assets with enormous cash flow and low risk.
“If you’re as smart as Warren Buffett, maybe two or three times in a century, you had an idea like that,” Munger said.
Conglomerates were able to borrow cheaply up to ten years in advance and use the funds to buy shares with a 5% yield. Munger added that this was “terribly easy money.”
“It was like God opened a chest and poured money into it,” he said in an episode of the Acquired podcast released this week.
Stocks cooled last quarter but have risen this year: Itochi, Marubeni and Mitsubishi Corp. are up 51%, 37% and 62% so far this year, respectively.