Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B) reported its third-quarter earnings on Saturday. Despite a net loss of $12.77 billion, the company’s operating income showed a significant increase, rising by 40.65% from the year-ago period to $10.76 billion.
Buffet did not address shareholders in a letter, but the company attributed the losses to changes in the unrealized gains within the company’s equity security investment holdings. The company emphasized that quarterly investment gains/losses often have little meaning and can be misleading to investors without a deep understanding of accounting rules.
Cash Reserves Expand:
Berkshire continued to grow its substantial cash reserves, reaching a record $157.2 billion, up from $147.4 billion in the previous quarter.
The company primarily invests in U.S. Treasury bills, taking advantage of their yields, which now exceed consumer inflation rates by over 1% due to rising interest rates.
Stock buybacks decelerated in the third quarter, with $1.1 billion in repurchases, down from $1.4 billion in the previous quarter. The future of buybacks is under scrutiny due to new tax legislation introduced by President Joe Biden’s administration. Buffett defended buybacks in his 2022 annual letter.
Stock Portfolio Performance:
Berkshire’s stock portfolio faced challenges, particularly with a 12% drop in Apple (AAPL) shares, which make up a significant portion of the company’s holdings.
This was partly due to a reported Chinese ban on Apple’s flagship iPhone. Other holdings, such as Bank of America (BAC) and Coca-Cola (KO), also felt the impact of market fluctuations. The company ventured into new territory by building stakes in U.S. home construction firms.
Notable Changes in Holdings:
There were several notable changes in Berkshire’s holdings, including a reduction in General Motors Co. (GM) and the sale of a significant portion of insurance firm Globe Life Inc. (GL). Berkshire’s merger arbitrage play, Activision Blizzard, saw a two-thirds reduction following Microsoft’s acquisition.
Munger Praises Japanese Bets:
Charlie Munger, Buffett’s long-time investment partner, praised Berkshire’s Japanese trading company investments. Berkshire increased its stakes in various Japanese companies, and these investments have paid off, with strong cash flow and low risk. Munger described these investments as “awfully easy money.”
While these Japanese stocks cooled in the recent quarter, they have shown strong performance throughout the year. Itochu, Marubeni, and Mitsubishi Corp. have risen by 51%, 37%, and 62%, respectively, year-to-date.