Reward 1000 Tiger-coinsOn August 6, Warren Buffett's company - Berkshire Hathaway- announced its latest earnings:
Q2 revenue of $76.18 billion, compared to $69.11 billion last year.
Net earnings (loss) attributable to Berkshire Hathaway shareholders: -$43.755 billion, compared with earnings of $28.094 billion last year.
The loss was mainly due to investment and derivatives losses of $53.038 billion.
2Q Berkshire Investment Huge Losses: $53 billion
In the 2Q, US stocks fell into a bear market. The $S&P 500(.SPX)$ fell 16% in the second quarter, the largest quarterly decline since March 2020, the $DJIA(.DJI)$ fell 11% and the $NASDAQ(.IXIC)$ fell more than 22%.
Berkshire's five largest positions- $ Apple (AAPL)$, $ Bank of America (BAC)$, $ American Express (AXP)$, $ Chevron (CVX)$ in the 2Q have fallen sharply, which might account for Berkshire's losses.
Don't Worry About Floating Losses?
According to US GAAP, long-term holdings will be accounted in the book value; for short-term investments that might be sold, the market price is accounted, and the difference is included in earnings.
In other words, the floating gain or loss of the stock is included in the net income. So, the $53bln losses are just floating losses.
In its report,
Berkshire cautions investors not to pay much attention to fluctuations in investment income.
Investment gains and losses in any single quarter are meaningless. The net earnings per share may be misleading to investors who have little or no knowledge of accounting rules.
But after June 17, $Apple(AAPL)$ began to rise sharply in a row, and several other positions, Bank of America, Chevron, and American Express also continued to rise. It meant the floating losses of Berkshire may decrease in the next quarter.
Buy the Dip or not? It’s a question.
Compared to the $51.1 billion investment in the 1Q, Buffett sold $2.3 billion of shares and spent only $6.2 billion on stock purchases (most of which was used to increase his holdings in $Occidental(OXY)$ ) in 2Q.
Some analysts expect $Occidental(OXY)$ to report net earnings of $10.7 billion this year.
Under Equity accounting principles, if Berkshire holds at least 20% of its common stock, it may bring $2 billion to Berkshire profits.
However, at the same time, Berkshire's share price has retraced more than the broader market in the last 3 months.
$Berkshire Hathaway(BRK.B)$ closed at $292 on Friday amid a recent 2-week rally in the US stock market. It is still at the recent 1-year low.
Berkshire reported weak earnings on Aug. 6, which means its shares will continue to fall recently.
Would you buy Berkshire lately (and at what price)?
Do you think Berkshire can outperform the broader market this year?
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Comments
Even though Berkshire Hathaway posted loss of USD 53 billion in 2Q, it is actually due to floating losses since accounting rules require Berkshire Hathaway to include unrealised gains and losses from its investment portfolio.
Actually Berkshire's operating earnings rose to USD9.3 billion from USD6.7 billion in previous year. Earnings grew at all of its major units including railroad, utilities, energy and insurance as well.
Berkshire Hathaway still have a significant cash pile at USD105.4 billion waiting to be deployed.
I will go in tranches to buy Berkshire with Target price of USD280 to USD290 as it is hard to predict the bottom.
The present market offers great opportunity to buy Berkshire Hathaway as it is trading at very attractive levels. I can foresee that Berkshire Hathaway's performance will improve later this year as inflation levels will drop due to the Feds interest rates hikes and supply chain disruption easing off.
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