Buffet’s Berkshire Loses $44 Billion

Warren Buffet’s Berkshire loses $44 billion. The second quarter’s deficit for Berkshire Hathaway Inc., the conglomerate headed by billionaire Warren Buffett, was $43.8 billion (43,755)(47.4 billion) as a result of the decline in US stock prices. In comparison to the S&P 500’s 16 percent loss from April to June, the stocks of three significant Berkshire Hathaway holdings—Apple Inc., Bank of America Corp., and American Express Co. Each experienced a decline of more than 21%. The third quarter saw a recovery in these equities, though, so Berkshire’s portfolio is now worth more than it was at the end of the period. Berkshire controls more than 90 businesses in addition to investments.

Despite this, Berkshire still managed to generate operating profits of close to $9.3 billion (€9.1 billion), thanks to gains from reinsurance and the railroad operator BNSF that more than offset new losses at the Geico car insurer where parts shortages and higher used car prices increased accident claims. The company’s insurance divisions were able to increase their investment income thanks to rising interest rates and dividend payments, and the appreciating US dollar also improved profits from holdings of European and Japanese debt. Despite the significant net loss, James Shanahan, an Edward Jones & Co analyst who rates Berkshire as “neutral,” noted that the numbers highlights Berkshire’s resiliency.

“Businesses are performing well despite higher interest rates, inflation pressures and geopolitical concerns,” he said. “It gives me confidence in the company if there is a recession.”

Although Berkshire still had $105.4 billion (€103.1 billion) in cash available for use, it also curbed purchases of its equities, including its own.

List Of Companies Stocks Warren Won’t Stop Buying

1. Chevron

Buffett’s newfound love for energy stocks will undoubtedly be the biggest change to Berkshire Hathaway’s portfolio in 2022. Energy has never comprised such a sizable portion of Buffett’s portfolio over the past 21 years. The Oracle of Omaha increasing his company’s interest in Chevron (CVX 1.65 percent) by roughly 121 million shares during the first quarter is a major factor in this.

Warren Buffett rarely invests in shorter-term securities; therefore, his growing interest in Chevron can only be explained by his conviction that energy commodity prices would continue to rise for some time. It’s possible to argue that the price of oil and natural gas will trend significantly higher than average. There is simply no simple way to increase supply to the market given that major domestic and foreign oil and gas producers have reduced capital spending because to the pandemic and Russia’s invasion of Ukraine. Even when short-term volatility pushes energy commodities a little lower, this should be positive for oil and natural gas prices over the long term.

Buffett probably likes Chevron’s integrated operational approach as well. Although the drilling business is where the corporation makes its most lucrative profits, it also runs transmission pipelines, refineries, and chemical facilities. Typically, fixed-fee or volume-based contracts, which generate relatively predictable cash flow, are relied upon by transmission pipelines. In contrast, when crude oil prices decline, downstream refining and chemical operations typically benefit from lower input costs. Chevron actually has all of its bases covered.

The icing on the cake is the healthy 3.7 percent dividend offered by Chevron, which also has plans to repurchase up to $10 billion worth of shares in 2022. Rarely does Warren Buffett reject a market titan with a large capital return program.

2. Activision Blizzard

Activision Blizzard (ATVI -0.21 percent), a maker of video games, is a second stock that the Oracle of Omaha can’t stop adding to Berkshire Hathaway’s holdings. According to remarks made by Buffett during his company’s annual shareholder meeting, he more than quadrupled Berkshire’s stake in Activision during the first quarter and has allegedly continued to add. What’s particularly interesting about Buffett’s Activision Blizzard stake, which stands at 9.5 percent of the company’s outstanding shares, is entirely it’s an arbitrage opportunity. It’s a short-term investment, in other words.

Microsoft (MSFT -0.26 percent), a leading provider of software, made an all-cash offer of $95 to acquire Activision in mid-January. Microsoft already has a sizable gaming presence, but to achieve its metaverse goals, it is probably looking to add Activision. Connected users will be able to engage with one another and their surroundings in 3D virtual settings thanks to the “metaverse,” the next iteration of the internet. Activision’s stock last traded at $80.59 on August 3, 2022, so if the purchase goes through, there will be a nearly 18% arbitrage opportunity.
But the $64,000 question is ultimately whether regulators will approve the transaction. The purchase is under rigorous scrutiny by the UK’s antitrust agency, and Microsoft might have to make some adjustments in order for it to go through. Time will tell whether Buffett’s arbitrage play was a smart one.

3. Occidental Petroleum

A $10 billion holding in preferred shares of the oil and gas company Occidental Petroleum (OXY 2.70 percent) was owned by Berkshire Hathaway at the start of the year. Buffett’s business now controls more than 181 million shares of Occidental’s common stock in addition to its 8 percent earning preferred stock.

The concept for these huge buys is identical to that of Chevron. If oil and gas prices remain elevated for the foreseeable future, Occidental Petroleum should experience large upticks in its operating cash flow and profitability. Occidental, like Chevron, is an integrated firm, but the drilling business accounts for the majority of its profitability. Perhaps even more so than Chevron, it is a straight gamble on rising oil and gas prices.

However, Occidental Petroleum’s balance sheet has been a catastrophe for the past few years, unlike Chevron. The business is heavily indebted as a result of the acquisition of Anadarko in 2019 (i.e., the deal where Berkshire Hathaway gave $10 billion to Occidental in exchange for preferred shares with an 8% annual yield). Even after paying off $4.8 billion in debt in the quarter that ended in June, the corporation still carries roughly $21.7 billion in net long-term debt. Even while there has been a $13.6 billion improvement since last year, the firm still needs favorable energy commodity prices in order to totally right the ship.

If an 8 percent preferred stock dividend wasn’t enough of a perk for Buffett, Occidental Petroleum has started repurchasing its own stock. Through August 1, 2022, the corporation retired more than 18 million shares for a cost of $1.1 billion.

4. Berkshire Hathaway

The fourth investment that Warren Buffett won’t quit purchasing is his own business! The share repurchase policies of Berkshire Hathaway were rather simple prior to July 17, 2018. Berkshire Hathaway’s book value had to be 120 percent or less for Warren Buffett and his right-hand man Charlie Munger to repurchase shares (i.e., no higher than 20 percent above book value). The Oracle of Omaha’s stock never reached this level between mid-2012 and mid-2018.

July 17, 2018, the board of directors of Berkshire Hathaway changed the buyback policy to two straightforward guidelines. Buybacks are permitted without a cap if Berkshire Hathaway has at least $30 billion in cash and U.S. Treasuries on its balance sheet and Warren Buffett and Charlie Munger concur that the stock price is far below the company’s intrinsic value. More than $61 billion worth of Berkshire’s Class A and B shares have been repurchased since mid-2018 with the approval of Buffett and Munger, including $3.11 billion in the first quarter of 2022.

Repurchasing shares of stock can boost a company’s earnings per share in conjunction with flat or increasing net income by reducing the number of outstanding shares. Theoretically, a continuing share repurchase program might improve a company’s intrinsic appeal to Wall Street and investors.

Worst Stock Companies That Warren Invested In

  • Liberty Latin America (NASD:LILA) -66%
  • RH (NYSE:RH) -64%
  • NU Holdings (NYSE:NU) -62%
  • Snowflake (NYSE:SNOW) -59%

Because of Buffett’s fame and the fact that the conglomerate’s several operating units in Omaha, Nebraska frequently produce outcomes that match broader economic trends, investors pay close attention to Berkshire.

These entities include reliable revenue generators like its name-brand energy company, a number of industrial firms, and well-known US consumer brands like Duracell and Fruit of the Loom. According to Cathy Seifert, a CFRA Research analyst with a “hold” rating on Berkshire, “Berkshire is a microcosm of the larger economy.” While many businesses are benefiting from increased demand, they are not exempt from inflation-driven increases in input costs.

Conclusion

According to Berkshire, “major disruptions of supply chains and greater costs have persisted” as a result of the emergence of new Covid-19 versions and geopolitical events, such as Russia’s invasion of Ukraine. But despite greater expenses for supplies, shipping, and labor, it claimed that direct losses had not been particularly significant.

Even if Berkshire makes no purchases or sales, accounting regulations oblige the company to include the losses in its results.
Although, Warren Buffet’s Berkshire loses $44 billion. Buffett advises investors to disregard the volatility because if stock prices grow over time, Berkshire will profit.

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