Berkshire takes advantage of market swoon to buy stocks

(Bloomberg) — A subsidiary of Berkshire Hathaway Inc. Warren Buffett’s old saying: Buy a dip.

The conglomerate was a net buyer of shares for the quarter, reporting $45.2 billion in purchases after subtracting sales in its second-quarter results released on Saturday. It bought a total of $41.4 billion in stock in the first three months of 2022 after being a net seller in the second quarter of last year.

Berkshire stepped in as the S&P 500 fell 16% in the quarter. The Omaha, Nebraska-based company also reported operating profit of $9.2 billion as its insurance and rail business posted gains.

One of the companies flashing potential warning signs is Geico, the company’s personal auto insurance unit, said Kathy Seifert, an analyst with CFRA Research. It reported a $487 million underwriting loss, even as the group’s other insurance lines rose along with the division’s investment income.

But Seifert said the report as a whole reflected “decent growth in earnings, and still decent demand for various goods and services, offset by higher input costs and volatility in stock markets.”

Berkshire said the losses at Geico were the result of an increase in the severity of claims due to higher prices for used cars and a shortage of auto parts. The company said the policies in place have waned even as premiums have increased, a possible sign that the company is losing market share as customers look for better rates elsewhere.

“They’re in a bit of a tough spot right now,” Seifert said, adding that the same trends are at play in other auto insurers but that they seem to hit Geico in particular. “It might be a good idea to watch for further deterioration.”

The same market weakness that increases Buffett’s purchasing power is weighing on his company’s results, at least on paper. The company recorded a net loss of $43.8 billion as a result of a loss of $53 billion in the company’s investment portfolio. Berkshire downplays these results as a function of accounting rules, saying they provide a misleading picture of the company’s actual performance.

What Bloomberg Intelligence says:

Berkshire was a net buyer of shares in the second quarter of more than $45 billion, or $86.6 billion in 2022, versus a net seller of $16 billion in 2020-2021. We believe this path may continue and does not necessarily indicate that Buffett is bearish in his stock; Buybacks have always been a lower priority use of a company’s capital. Repurchases of $1 billion in the second quarter fell from the 2021 pace of about $7 billion in the quarter. “

— Matthew Palazzola, Senior Insurance Industry Analyst at BI

Buffett’s appetite for his shares waned even as his shares were piled up elsewhere. Stock buybacks posted $1 billion for the second quarter, trailing the $3.2 billion in buybacks at the start of the year.

The company also reported that Berkshire Hathaway Energy acquired $870 million in common stock from Vice Chairman Greg Appel in June. The deal was not previously disclosed.

Despite the spending spree, Berkshire has made only a small drop in the cash pile. The company reported $105.4 billion at the end of June, just barely budging from $106 billion at the end of the first quarter.

The blistering pace at which Berkshire bought shares of Occidental Petroleum Corp. But the company did not provide insight into its regulatory filing strategy for the quarter.

(Updates with comment from analysts begin in the fourth paragraph.)

© Bloomberg LP 2022

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