Warren Buffett\u2019s business buffet, the conglomerate that is Berkshire Hathaway, dropped its Q3 report over the weekend.<\/p>\n
And somehow, despite reporting a net loss of US$12.77 billion, the company\u2019s operating income erupted \u2013 surging by 40.65% on the previous Q3 \u2013 from $7.65bn to $10.76bn.<\/p>\n
So \u2013 a big jump in third quarter operating earnings and a record pile of cash-on-the-side is what happens when Warren Buffett just doesn\u2019t see the right conditions for dealmaking opportunities.<\/p>\n
Other than snapping up 6 million of US home builder D.R. Horton Inc. (DHI) shares worth some $725 million, Buffett has also built his stake in Occidental Petroleum to over 25%.
\n\u00a0<\/p>\n
I hear you scream into your pillows.<\/p>\n
Just what world does WB inhabit where circa US$13bn in losses doesn\u2019t touch the sides?<\/p>\n
It\u2019s Warren World. A grown-up world of sensible tempers and big numbers.<\/p>\n
This quarter, The Oracle of Omaha didn\u2019t send his usual earnings missive \u2013 but that full year letter is on its way for Christmas \u2013 and at somewhere around 100 years old, frankly, he doesn\u2019t have to. Instead Berkshire just told investors what Berkshire investors already know \u2013 equity portfolio fluctuations are inevitable, meaningless and neccesary.<\/p>\n
While that\u2019s disappointing from a literary standpoint \u2013 they really are great \u2013 can you imagine even BHP putting this line (bold\/italics) in just after dropping its 4E:<\/p>\n
Via Berkshire Hathaway<\/em><\/p>\n That\u2019s a bit haughty and naughty for a company, but I guess, when your total Q3 investment loss of US$24.1bn is a very large number to the rest of the universe, yet a wee blip of an anomaly in Buffett\u2019s Big Business Breakfast of Life, you can say things which sound stupid coming from the rest of the universe.<\/p>\n Like perhaps this: Buffett\u2019s Two Rules of Investing: \u00a0\u201cRule No. 1: Never lose money. Rule No. 2: Never forget rule No.1\u201d.<\/p>\n However, for every glib remark, the Berkshire chair and chief tends to live and invest by the ideas that\u2019ve made him the seventh-richest person in the universe today.<\/p>\n Like this: \u201cBeware the investment activity that produces applause; the great moves are usually greeted by yawns.\u201d<\/p>\n That better captures Buffett\u2019s thinking around the Q3 loss which reflects not just the yank backwards global markets were given in the last quarter, but how tough it was even for Apple (AAPL) which still makes up nearly half the entire Berkshire equity portfolio.<\/p>\n In a rare rough run for the tech giant, Apple stock fell almost 12% during the quarter \u2013 hitting Berkshire\u2019s top line.<\/p>\n Buffett did not address shareholders in a letter, but the company said the losses were caused by changes during the third quarter in the unrealised gains that existed in the company\u2019s equity security investment holdings.<\/p>\n The Omaha-based conglomerate\u2019s operating earnings, which are the profits which rain down into the delta that is Berkshire\u2019s topographical map of wholly owned businesses \u2013 insurance, transport, infrastructure, railways, industry, utilities \u2014 hit a $10.761bn total net for the quarter. That\u2019s a 40.6% increase on the same quarter a year ago. Berkshire held a record level of cash at the end of September, expanding its grotesque cash hoard to $157.2bn, up from $147.4bn in the second quarter and easily topping the $149.2bn high of Q3 2021.<\/p>\n And where\u2019s the money stashed? Largely in Treasury bills, which recently surged past 5%.<\/p>\n Berkshire increased its Treasury bill holdings by 36% in the last year, which totalled $126bn in Q3.<\/p>\n Berkshire has been capitalising like crazy on the yields that just trounce the take on US consumer inflation (CPI) as record fast-rising interest rates have made the hgher ground of US Treasuries so much more attractive.<\/p>\n The \u201cOracle of Omaha\u201d has been taking advantage of surging bond yields, buying up short-term Treasury bills yielding at least 5%. The conglomerate owned $126.4 billion worth of such investments at the end of the third quarter, compared to about $93 billion at the end of last year. Buyback activity continued to slow down as Berkshire shares roared to a record high during Q3.<\/p>\n Berkshire splashed some $1.1bn buying back its stock.<\/p>\n WB\u2019s been buying back at leisure, a practice he strongly believes is beneficial to all shareholders.<\/p>\n Stock repurchases have drawn whiny complaints and weak criticism from US politicians who say Corporate America should find a more constructive use of their influence and cash.<\/p>\n They\u2019ve been saying (tweeting mainly) something like \u2013 WB. Why give earnings per share a short sharp boost, when investing in the US of A or employees would be more beneficial??<\/em> \u201cWhen 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 (characters that are not mutually exclusive),\u201d the 92-year-old investor said in February.<\/p>\n Buffett believes buybacks are beneficial to shareholders as they provide a lift to per-share intrinsic value.<\/p>\n \u201cThe math isn\u2019t complicated: When the share count goes down, your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices. Gains from value-accretive repurchases, it should be emphasised, benefit all owners \u2013 in every respect.\u201d<\/p>\n In response to that, Buffett has spent about $7bn betting on himself so far this year; in the third quarter repurchasing more than 145,570 shares of its Class A and Class B stock.<\/p>\n And why not, when Berkshire\u2019s Class A shares have climbed a lazy 13.6% in 2023, clocking an all-time high in September before falling away during the lean run of the last few months.<\/p>\n Berkshire \u2013 not entirely unaware of the troubles most ordinary businesses and investors face \u2013 did take a moment to acknowledge the tough economic conditions from geopolitical risk to inflationary pressures.<\/p>\n \u201cTo varying degrees, our operating businesses have been impacted by government and private sector actions to mitigate the adverse economic effects of the COVID-19 virus and its variants as well as by the development of geopolitical conflicts, supply chain disruptions and government actions to slow inflation.\u201d The Oracle of Omaha bought a 5% stake in Japan\u2019s top five trading companies.<\/p>\n This year, as Japan\u2019s stock markets rocketed to 33-year highs, Berkshire disclosed it had in fact doubled down, taking its stakes in each company to an average of more than 8.5%. The US giant still has room to run, as it has previously stated it could eventually raise its stakes of each firm to 9.9%.<\/p>\n The \u201csogo shosha\u201d trading co\u2019s are specialists in sourcing the raw materials from around the world and shipping them to resources-poor Japan. They focus on diversified long-term investments that prioritise value and cash flow.<\/p>\n A remnant of post-war reconstruction, the sogo shosha business model is uniquely Japanese. Although there are \u2018trading companies\u2019 of all sorts about the world, there\u2019s nothing like these sprawling can-do trading giants.<\/p>\n The companies are active across an extraordinary variety of commodities and materials from up and downstream products, foods and supply chain goods, wherein they work both as intermediaries, holding houses and logistical services.<\/p>\n The sogo shosha provide a credit management function and a financial facility, leaning on vast financial resources, while also investing in and taking part in the management of businesses as needed. In this regard they\u00a0deal not only in hardware but also in software, they\u2019re involved directly in developments from urban redevelopment and social infrastructure development, IT solution implementation services, and matching businesses such as licensing of fashion brands and commercialisation of high-tech patents.<\/p>\n The stocks are all up more than 30% this year.<\/p>\n Shares of Mitsubishi and Marubeni are up circa 50% year to date, with Mitsui up 45%, Itochu up 30% and Sumitomo 39% higher.<\/p>\n Marubeni\u2019s business has more than tripled in market cap since Warren first turned up mid-2020. Shares of Mitsubishi have jumped more than 5x.<\/p>\n Japan\u2019s key indices the Nikkei and Topix are both ahead more than 25%, year-to-date. Buffett\u2019s big stake in Apple equates to around 50% of the Berkshire portfolio and the- 12% loss driven in part by Beijing\u2019s opaque ban on iPhone during the quarter represents a near $20bn paper loss, reversing the near $27 billion win in Q2.<\/p>\n Berkshire\u2019s other major stakes to take a quarterly hit alongside Wall Street\u2019s benchmark index were blue chip names, like Bank of America (BoC) (BAC), and Vanilla Coca-Cola (KO).<\/p>\n In the black column, Berkshire\u2019s US insurance giant (but truly awful podcast advertiser) Geico \u2013 often described as the crown jewel of Berkshire\u2019s stupendously sized insurance arm \u2013 set the conglomerate\u2019s pace for quarterly revenue, bringing in underwriting earnings of $1.1bn.<\/p>\n Warren\u2019s insurer is already snatching back lost market share after the rise of the NKOTB and well-named Progressive \u2013 the new upstart US auto insurance hotshot.<\/p>\n <\/span><\/p>\n The post No, this is a \u2018recession play\u2019: Berkshire\u2019s Q3 earnings jump more than 40pc<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"
\n\u00a0<\/p>\nCash and Treasure<\/h2>\n
\n\u00a0<\/p>\nTaking back<\/h2>\n
\n\u00a0<\/p>\nWarren doesn\u2019t buy it<\/h2>\n
\n\u00a0<\/p>\nBig in Japan<\/h2>\n
\n\u00a0<\/p>\nElsewhere with Warren<\/h2>\n