Warren Buffett’s Berkshire Hathaway sharply slowed new investments in the second quarter after setting an accelerated pace earlier this year, as a U.S. stock market selloff pushed the railroad insurance conglomerate into a loss of 43.8 billion dollars.
Berkshire said on Saturday that the slump in global financial markets had weighed heavily on its stock portfolio, which fell in value to $328 billion from $391 billion at the end of March. The reported losses of $53 billion in the three months to June far exceeded an upbeat quarter for its businesses, which improved its profitability.
The company’s filing with U.S. securities regulators showed its new stock purchases fell to about $6.2 billion in the quarter, down from the $51.1 billion it spent between January and March, once which surprised Berkshire shareholders. Berkshire sold $2.3 billion in shares over the past three months.
Berkshire also spent $1 billion buying back its own stock in June, a tactic commonly used when Buffett and his investment team find less attractive targets in the market.
The 91-year-old investor noted at the firm’s annual meeting in Omaha in April that the flurry of multibillion-dollar stock purchases is likely to slow as the year goes on, saying the ‘atmosphere at the company’s headquarters had become more “lethargic”.
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 the company has increased its stake in energy firm Occidental Petroleum in recent months.
Berkshire’s huge cash and Treasury holdings were little changed since late March, falling less than $1 billion to $105.4 billion.
While net income fell from a profit of $5.5 billion at the start of the year to a loss of $43.8 billion, operating income, which excludes ups and downs in stock positions of Berkshire, rose 39% to $9.3 billion. This included a currency-related gain of $1.1 billion on its non-US dollar debt.
Berkshire must include changes in the value of its portfolio of stocks and derivatives as part of its earnings each quarter, an accounting rule that Buffett has warned can make the company’s earnings numbers look “extremely misleading ” and volatile.
The loss came to $29,754 per Class A share. That contrasts with the $18,488 per share profit the company reported a year earlier.
Berkshire’s results are looked at by analysts and investors for signs of the health of the US economy in general, as its companies are located in much of the country’s industrial and financial heartland.
Inflationary pressures continued to bite, although many of its divisions were able to pass on higher prices to customers. BNSF Railroad, which Buffett has described as one of Berkshire’s “four giants,” reported a 15% rise in revenue as fuel surcharges it charged customers offset a drop in shipping volumes. Fuel costs for BNSF, which has more than 32,500 miles of rail tracks in 28 states, rose more than 80% year over year.
Insurance unit Geico posted a pretax underwriting loss of $487 million in the quarter, up from the previous three months. The division attributed the larger loss to the much higher prices for new cars and the auto parts it has to pay when its customers are involved in accidents.
Buffett said in April that the company was seeing the effects of inflation firsthand and warned that it was “ripping off almost everybody.”
Berkshire’s housing businesses, including modular home unit Clayton Homes and home decor retailer Nebraska Furniture Mart, offered clues about how consumers were responding to higher prices and rising mortgage rates . Furniture sales were relatively flat, with higher prices offsetting lower orders.
However, there were signs of strength in the housing market, with new home sales in Clayton up 9.8 percent in the first half of the year. The division’s revenue rose 28 percent to $3.4 billion in the second quarter from a year earlier.
“Increases in home mortgage interest rates will most likely dampen demand for new home construction, which could adversely affect our businesses,” Berkshire warned. “We also continue to be adversely affected by persistent supply chain disruptions and significant increases in the costs of many raw materials and other inputs, including energy, transportation and labor.”
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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 anointed successor, held directly in his energy unit.
Abel joined the company in 2000 when Berkshire acquired utility MidAmerican Energy, and had kept some of his wealth in that business instead of shares in Berkshire’s parent company.
Berkshire Hathaway’s Class A shares have fallen about 2% this year, outpacing the benchmark S&P 500’s 13% drop.