Warren Buffett’s Berkshire reins in stock purchases and books $43.8bn loss

Warren Buffett’s Berkshire Hathaway slowed new investment dramatically in the second quarter after setting a breakneck pace early in the year as the US stock market sell-off pushed the railroad insurance conglomerate down to a $43.8 loss. billion pushed.

Berkshire said on Saturday that the decline in global financial markets had weighed heavily on its equity portfolio, which declined in value to $328 billion, from $391 billion at the end of March. The recorded loss of $53 billion in the three months to June far outweighed a positive quarter for its companies, improving their profitability.

The company’s filings with U.S. securities regulators showed that its purchases of new stock fell to about $6.2 billion in the quarter, compared to the $51.1 billion it spent between January and March — a spurt that shareholders of U.S.A. Berkshire surprised. Berkshire has sold $2.3 billion worth of shares in the past three months.

Berkshire also spent $1 billion in June to buy back its own shares, a common tactic 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 in April that the flow of multi-billion dollar purchases would likely slow as the year progressed, saying the atmosphere at the company’s headquarters had become more “listless”.

Investors will receive a more detailed update on how Berkshire’s stock portfolio has changed later this month, when the company and other major 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.

Berkshire’s giant cash and government bonds have changed little since late March, falling less than $1 billion to $105.4 billion.

While net income fell from a $5.5 billion profit at the start of the year to a loss of $43.8 billion, operating income — excluding the ups and downs of Berkshire’s stock holdings — rose 39 percent to $9. .3 billion. That included a $1.1 billion currency-related gain on its non-US dollar debt.

Berkshire is required to include the fluctuations in the value of its equity and derivatives portfolio as part of its earnings every quarter.

The loss was $29,754 per Class A share. It contrasts with earnings of $18,488 per share the company reported a year earlier.

Line chart of performance to date (%) showing Berkshire outperformed the broader US stock market this year

Berkshire’s results are being analyzed by analysts and investors for signs of the health of the broader US economy as the companies traverse much of the country’s industrial and financial heart.

Inflationary pressures stalled, although many of its divisions were able to pass on higher prices to customers. The BNSF railroad, which Buffett has described as one of the “four giants” in Berkshire, reported a 15 percent increase in sales as fuel surcharges they imposed on customers offset a drop in shipping volumes. Fuel costs for BNSF, which has more than 32,500 miles of rail lines in 28 states, rose more than 80 percent year on year.

Insurance unit Geico posted a pre-tax underwriting loss of $487 million in the quarter, up from the previous three months. The division attributes the greater loss to the much higher prices for new cars and auto parts it has to pay when its customers are involved in accidents.

Buffett said in April that the company was seeing the effects of inflation firsthand and warned it is “framing almost everyone.”

Berkshire’s housing companies, including modular housing unit Clayton Homes and retailer Nebraska Furniture Mart, provided hints about how consumers were reacting to higher prices and higher mortgage rates. Furniture sales were relatively flat, with higher prices offsetting lower orders.

Nevertheless, there were signs of strength in the housing market, with new Clayton home sales up 9.8 percent in the first half of the year. The division’s second-quarter revenue rose 28 percent to $3.4 billion from a year earlier.

“Mortgage interest rate hikes are very likely to slow demand for new home construction, which could negatively impact our businesses,” Berkshire warned. “We also continue to be negatively impacted by ongoing supply chain disruptions and significant cost increases for many raw materials and other inputs, including energy, freight and labor.”

Berkshire spoke of a potential conflict that emerged at the company’s annual meeting earlier this year. In June, it spent $870 million to buy shares that Berkshire vice chairman Greg Abel, Buffett’s anointed successor, owned directly in his energy unit.

Abel joined the company in 2000 when Berkshire acquired utility company MidAmerican Energy and kept some of its assets in that company rather than in stock of Berkshire’s parent company.

Shares of Berkshire Hathaway’s Class A common stock are down about 2 percent this year, outperforming the 13 percent drop in the benchmark S&P 500.

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