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Warren Buffett’s Berkshire Controls Stock Buys, Posts $43.8 Billion Loss

Warren Buffett’s Berkshire Hathaway slowed new investment significantly in the second quarter after establishing a frantic pace at the start of the year, as a sell-off in the US stock market pushed the railroad insurance conglomerate to a $43.8 billion loss.

Berkshire said on Saturday that the fall in global financial markets had taken a heavy toll on its stock portfolio, which fell 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 more than offset an upbeat quarter for its businesses, which improved their profitability.

The company’s filing with U.S. securities regulators showed its purchases of new shares declined to about $6.2 billion in the quarter, down from the $51.1 billion spent between January and March – a surge that surprised Berkshire shareholders. Berkshire has sold $2.3 billion worth of stock in the past three months.

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

The 91-year-old investor signaled at the company’s annual meeting in Omaha in April that the multibillion-dollar stock-buying spree was likely to ease as the year progressed, saying the atmosphere at the company’s headquarters had become more “lethargic”.

Column chart of cash, cash equivalents and short-term treasury bills held (in billions of dollars) showing Berkshire Hathaway's war chest

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 that the company has increased its stake in energy company Occidental Petroleum in recent months.

Berkshire’s gigantic cash and treasury holdings have changed little since late March, falling less than $1 billion to $105.4 billion.

While net profit fell from a profit of $5.5 billion at the start of the year to a loss of $43.8 billion, operating profit – which excludes the ups and downs of positions in Berkshire shares – rose 39% to $9.3 billion. This included a $1.1 billion currency-related gain on its non-US dollar debt.

Berkshire is required to include fluctuations in the value of its stock and derivatives portfolio as part of its earnings each quarter, an accounting rule that Buffett says can make the company’s earnings numbers “extremely misleading. ” and volatile.

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

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

Berkshire’s results are being scrutinized by analysts and investors looking for signs of the health of the broader US economy, as its operations cut across much of the country’s industrial and financial heartland.

Inflationary pressures continued to be felt, although many of its divisions were able to pass on higher prices to customers. Railroad BNSF, which Buffett described as one of Berkshire’s ‘giant four’, reported a 15% increase in revenue as fuel surcharges it imposed on customers offsetting a drop in passenger volumes. ‘dispatch. Fuel costs for BNSF, which has more than 32,500 miles of railroads in 28 states, have jumped more than 80% year over year.

Insurance unit Geico reported a pretax underwriting loss of $487 million in the quarter, up from the previous three months. The division blamed the biggest loss on the much higher prices for new cars and auto parts it has to pay when its customers are involved in crashes.

Buffett said in April that the company is seeing the effects of inflation firsthand, warning that it is “swindling almost everyone.”

Berkshire housing firms, including modular home unit Clayton Homes and home decor retailer Nebraska Furniture Mart, gave clues as to how consumers were reacting to rising prices and rising rates mortgages. Furniture sales were relatively flat, with higher prices offsetting lower orders.

Nonetheless, there were signs of strength in the housing market, with sales of new homes in Clayton rising 9.8% in the first half of the year. Revenue for the division rose 28% to $3.4 billion in the second quarter from a year earlier.

“Increases in mortgage interest rates will most likely slow demand for new home construction, which could negatively impact our business,” Berkshire warned. “We also continue to be negatively affected by ongoing 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 designated successor, held directly in his energy unit.

Abel joined the company in 2000 when Berkshire acquired utility MidAmerican Energy and had held some of his wealth in that business instead of stock in parent Berkshire.

Berkshire Hathaway’s Class A common stock has fallen about 2% this year, outpacing the benchmark S&P 500’s 13% decline.

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