Key Takeaways

  • Berkshire Hathaway reported a third-quarter net loss of $12.77 billion.
  • Apple’s 12% fall over the quarter hurt the company’s $350 billion stock portfolio.
  • 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.ABRK.B) reported its third-quarter earnings Saturday, which showed a net loss of $12.77 billion but the company’s operating income rose by 40.65% from the year-ago period to $10.76 billion.

Buffet did not address shareholders in a letter, but the company said the losses were caused by changes during the third quarter in the unrealized gains that existed in the company’s equity security investment holdings.

“The amount of investment gains/losses in any given quarter is usually meaningless and delivers figures for net earnings (losses) per share that can be extremely misleading to investors who have little or no knowledge of accounting rules,” the company said in a statement.

Here are four other highlights from the company’s earnings.

Yields Boost Cash Hoard

Berkshire continued to expand its huge cash hoard to a record $157.2 billion, up from $147.4 billion in the second quarter.

The cash pile is largely invested in U.S. Treasury bills, which recently surged to 5%. The company increased its Treasury bill holdings by 36% in the last year, which totaled $126 billion in the third quarter.

Berkshire is likely looking to capitalize on the yields that exceed consumer inflation by more than 1 percentage point as rising interest rates have made investments in Treasuries more attractive.

Buybacks Continue to Decelerate

Stock buybacks were down in the third quarter, with $1.1 billion in repurchases. That’s less than the $1.4 billion in the last quarter.

Investors will be watching how Buffett manages repurchases going forward, 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 repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue.”

In the third quarter, the company repurchased more than 145,574 shares of its Class A and Class B stock.

Stock Portfolio Takes a Hit

Apple (AAPL) shares were the main drag with a 12% drop over the third quarter, driven by a reported Chinese ban on the company’s flagship iPhone. Buffett’s big stake in Apple equates to around 50% of the Berkshire portfolio and the 12% loss equated to a $20 billion loss, reversing a gain of $26.6 billion in the previous quarter.

Other large Berkshire holdings outside of Apple also took a hit alongside the S&P 500, such as Bank of America (BAC), and Coca-Cola (KO).

The Oracle of Omaha was seen building new stakes in U.S. home construction firms, with a 6 million share binge on D.R. Horton Inc. (DHI), with a total value of more than $726 million. Buffett also added further shares of Occidental Petroleum a week ago meaning Berkshire now owns over 25%.

Other notable changes in August’s SEC Form 13F filing were a near 50% reduction in the holdings of General Motors Co. (GM) and a 4 million share dump of insurance firm Globe Life Inc. (GL), reducing the company’s stake to $275 million from about $700 million.

Another exit was a two-thirds reduction in merger arbitrage play Activision Blizzard, with Microsoft closing its acquisition in October.

Munger Calls Japanese Bets A Gift from God

Buffett’s long-time investment partner Charlie Munger heaped praise on the firm’s Japanese trading company bets this week.

Berkshire lifted its stakes in Itochu, Marubeni, Mitsubishi Corporation, Mitsui & Co., and Sumitomo in April to around 7.4% each. The company made its largest-ever bet outside of the U.S., taking advantage of when interest rates were low to get assets with huge cash flow and low risk.

“If you’re as smart as Warren Buffett, maybe two, three times a century, you had an idea like that,” Munger said.

The conglomerates were able to borrow cheaply up to ten years ahead and use the funds to buy stocks yielding 5%. Munger added that it was “awfully easy money.

“It was like having God just opening a chest and just pouring money into it,” he said on an episode of the Acquired podcast released this week.

The stocks cooled in the recent quarter, but have been surging this year, with Itochi, Marubeni, and Mitsubishi Corp. rising 51%, 37%, and 62% year-to-date respectively.

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