Warren Buffett, Berkshire Hathaway CEO and chairman. Cnbc | Nbcuniversal | Getty Images
Berkshire Hathaway shares rallied to record highs Monday following a strong quarterly report that showed a rebound in insurance operations as well as a massive cash hoard that swelled to nearly $150 billion.
Berkshire’s Class A shares climbed 3.4% to hit an all-time high of $551,920 on a a closing basis, exceeding the conglomerate’s previous high from March 2022. Class B shares of Warren Buffett’s conglomerate jumped a similar 3.6%, reaching a new record close of $362.58.
The Omaha-based giant reported Saturday that its operating earnings jumped 6.6% year over year, totaling $10.04 billion last quarter.
Berkshire shares rising
Insurance underwriting earnings recorded a 74% increase to $1.25 billion, benefiting from higher interest rates and lower catastrophe losses. The solid performance in insurance helped offset the softness in railroad due to lower volumes.
Meanwhile, Berkshire’s massive cash pile grew to $147.38 billion at the end of June, near a record and much higher than the $130.62 billion in the first quarter.
Elevated interest rates are now enabling Berkshire to earn a hefty return from its cash. The conglomerate held more than $97 billion in short term Treasury bills. Buffett previously revealed that he’s been buying $10 billion worth of 3-month or 6-month T-bills every Monday.
Warren Buffett, CEO of Berkshire Hathaway Inc, pauses while playing bridge as part of the company annual meeting weekend in Omaha, Nebraska U.S. May 6, 2018. REUTERS/Rick Wilking/File Photo/File Photo
Berkshire Hathaway (BRKa.N) on Saturday posted its highest ever quarterly operating profit, while gains from stock holdings helped the conglomerate led by billionaire Warren Buffett swing to a nearly $36 billion overall profit.
Rising interest rates, and better results at the Geico car insurer, allowed Berkshire’s insurance businesses to generate more money in the second quarter, with profit up 38% and interest and other investment income growing sixfold.
But while operating profit topped $10 billion, those same rising rates have made it more costly to buy and upgrade homes, hurting results at Berkshire’s Clayton Homes and building products businesses, and buy RVs from its Forest River unit, where revenue sank 34%.
Profit also fell at one of Berkshire’s largest businesses, the BNSF railroad, with a 24% decline reflecting lower shipments of consumer goods, price competition from truckers, and higher pay for employees.
Berkshire also appeared to remain wary of high stock prices as U.S. equities extended their rally.
During the second quarter it sold $8 billion more stocks than it bought and repurchased less of its own stock, and it ended June with a near-record $147.4 billion of cash.
“The story here is interest rates, and valuations of stocks,” said Jim Shanahan, an Edward Jones analyst with a “buy” rating on Berkshire.
“The earnings impact of higher interest rates on investment income is offsetting the economic softness caused by those same rates,” he added. “And it’s clear there aren’t a lot of attractive investment opportunities out there.”
Investors closely watch Berkshire because of Buffett’s reputation, and because results from the Omaha, Nebraska-based company’s operating units often mirror broader economic trends.
Those units also include Berkshire’s namesake energy company, several industrial companies, and familiar brands such as Dairy Queen, Duracell, Fruit of the Loom and See’s Candies.
Buffett turns 93 on August 30. He is worth $117.5 billion and the world’s sixth-richest person, Forbes magazine said.
NOT LOVING VALUATIONS
Quarterly operating profit rose 7% to $10.04 billion, or about $6,938 per Class A share, from $9.42 billion a year earlier.
Operating results reflected recent purchases of Alleghany, whose businesses include various insurers and the toy company that makes Squishmallows, and the Pilot truck stop operator, which added $114 million of profit.
Net income totaled $35.91 billion, or $24,775 per Class A share, compared with a year-earlier $43.62 billion loss.
Year-earlier results reflected an accounting change for some insurance contracts.
Berkshire repurchased $1.4 billion of stock in the quarter, down from $4.4 billion from January to March.
It also sold $12.6 billion of stocks, while buying just $4.6 billion. Apple (AAPL.O) comprised about half of Berkshire’s $353 billion equity portfolio.
“They’re not loving valuations,” said Cathy Seifert, a CFRA Research analyst with a “hold” rating on Berkshire.
“The quarter was strong, but organic growth trends are not that robust,” Seifert added. “The question that will be on investors’ minds is how to position the company for strong growth without more frequent acquisitions.”
Net results included $25.9 billion of largely unrealized gains from investments and derivatives, which accounting rules require Berkshire to report. This adds volatility to quarterly results, and Buffett urges investors to ignore the fluctuations.
He said he believes AI will change “everything in the world, except how men think and behave.”
Warren Buffett shared his thoughts on the rapidly evolving technology.
Generative artificial intelligence has become a buzzword this year, with apps such as ChatGPT capturing the public’s fancy. While AI chatbots are being employed for a variety of tasks, there are also fears of them being misused. There are also strong concerns that AI will take away millions of jobs and many tech entrepreneurs, including Elon Musk, have raised voices against its spread. Now, billionaire investor and CEO of Berkshire Hathaway, Warren Buffett also shared his thoughts on the rapidly evolving technology.
During a discussion at the company’s annual meeting in Omaha, Nebraska, Mr Buffett compared the creation of the powerful technology to the atomic bomb, New York Post reported.
A while back, the billionaire had a chance to try out ChatGPT when his friend Bill Gates showed it to him. While he was impressed by its vast capabilities, he said he is a bit apprehensive about the technology.
”When something can do all kinds of things, I get a little bit worried. Because I know we won’t be able to un-invent it and, you know, we did invent, for very, very good reason, the atom bomb in World War II”, the 92-year-old investor said at the meeting which was also attended by Charlie Munger, vice chairman of Berkshire Hathaway.
“It was enormously important that we did so. But is it good for the next two hundred years of the world that the ability to do so has been unleashed?” he continued. He further said he believes AI will change “everything in the world, except how men think and behave.”
“We didn’t have a choice, but when you start something, well, Einstein said after the atomic bomb, he said, this has changed everything in the world except how men think. And I would say the same thing, maybe not the same thing, I don’t mean that, but I mean with AI, it can change everything in the world except how men think and behave. And that’s a big step to take,” Mr Buffett added.
Mr Munger also shared his scepticism regarding the technology. ”I am personally sceptical of some of the hype that is going into artificial intelligence. I think old-fashioned intelligence works pretty well”, he said.
A crisis of confidence in the U.S. banking sector has led to the failure of three midsized banks since March as depositors fled from smaller banks, with calls for the Federal Deposit Insurance Corp (FDIC) to raise its $250,000 limit guarantee on deposits.
Warren Buffett says Berkshire is cautious on banking sector
Warren Buffett on Saturday said Berkshire Hathaway (BRKa.N) is cautious around the banking sector, largely because of poor messaging by officials around government-insured deposits, as well as distorted incentives he said were brought on by banking regulation.
A crisis of confidence in the U.S. banking sector has led to the failure of three midsized banks since March as depositors fled from smaller banks, with calls for the Federal Deposit Insurance Corp (FDIC) to raise its $250,000 limit guarantee on deposits.
The messaging by politicians, government agencies and the media around the safety of the banking system has been poor, the nonagenarian billionaire said at Berkshire’s annual meeting in Omaha, Nebraska.
“The U.S. government and the American public have no interest in having a bank fail and having deposits actually lost by people,” he said.
“We had a demonstration project the weekend of Silicon Valley Bank and the public is still confused.”
In March, startup-focused lender SVB Financial Group (SIVB.O) became the largest bank to fail since the 2008 financial crisis after depositors tried to pull more than $42 billion in a single day, kicking off the deposit flight across other regional banks and prompting the collapse of Signature Bank.
While 89% of SVB’s $175 billion in deposits were uninsured as of the end of 2022, according to the FDIC, depositors were protected, even those whose accounts exceeded $250,000, through a “systemic risk exception” designed to prevent broader contagion to the U.S. banking system.
Berkshire keeps around $128 billion in cash and Treasury bills, Buffett said.
“We want to be there if the banking system temporarily even gets stalled in some way – it shouldn’t – I don’t think it will, but I think it could,” he said.
Part of the reason for that is that incentives in banking regulation are “so messed up,” he said.
First Republic Bank, the latest regional U.S. bank to fail, disclosed that it was offering non-guaranteed jumbo-sized mortgages at fixed rates in its annual report.
“That’s what First Republic was doing and it was in plain sight and the world ignored it until it blew up,” said Buffett, who earlier noted his own father lost his job in 1931 because of a bank run.
“The incentives in bank regulation are so messed up and so many people have an interest in having them messed up — it’s totally crazy,” Buffett said. “So we are very cautious in a situation like that about ownership.”
Buffett made the comments while sitting behind a sign that said “Available for sale,” while his longtime business partner, Charlie Munger, sat behind a “Held-to-maturity” sign, referencing how banks account for their securities, which has been at the heart of the regional bank crisis.
First Republic, which was seized by regulators and sold to JPMorgan N>, had significant losses in its held-to-maturity investment portfolio, mainly government-backed debt.
Berkshire Hathaway CEO Warren Buffett has given his fans and shareholders priceless investing advice over the years. But of all the investment choices you can make over a lifetime, which one does Buffett consider to be the best?
It may not be what you think. In fact, it may not even be a blip on your radar screen. It’s working on your public speaking skills.
Here’s what Buffett said to a class of business students at Columbia University in a televised town hall event back in 2009:
Right now, I would pay $100,000 for 10 percent of the future earnings of any of you, so if you’re interested, see me after class. Now, you can improve your value by 50 percent just by learning communication skills–public speaking. If that’s the case, see me after class and I’ll pay you $150,000.
In simple Buffett-speak, the dividend on your public speaking investment will pay off for the rest of your career. He says it’s “an asset that will last you 50 or 60 years. And it’s a liability–if you don’t like doing it or are uncomfortable doing it–that will also last you 50 or 60 years, and it’s a necessary skill.”
This is one of several instances where Buffett has advised us to hone our communication skills as the key to success. Clearly, it has worked for Buffett, as his worth has increased to the tune of nearly $118 billion at last count.
But it didn’t come easy for Buffett, in case the idea of public speaking brings with it your own trepidation. The billionaire has publicly admitted that during high school and college, he was “terrified of public speaking” to the point of throwing up.
Taking a public speaking course at Dale Carnegie changed his life, Buffett has said. When you walk into Buffett’s office in Omaha, the only plaque proudly displayed on the wall isn’t his bachelor of science degree in business administration, which he earned from the University of Nebraska at 19. No, it’s the communication diploma he received in 1952 from Dale Carnegie–the one that transformed him.
