Warren Buffett’s Berkshire Hathaway Bets Big on the US Stock Market

Warren Buffett’s Berkshire Hathaway bet big on the US stock market in the first quarter, buying $51.1 billion worth of shares, while putting the sprawling conglomerate’s cash pile to work as financial markets tumbled from record lows.

It’s a dramatic reversal from an investor who had been selling stocks for the past two years, warning of high valuations and little in the market that would generate substantial returns.

But global financial markets have weakened in recent months as Russia invaded Ukraine and fears of a Chinese economic slowdown have shaken investor sentiment.

That has offered him a more attractive entry, according to analysts and investors who have warmed to the so-called Oracle of Omaha’s vote of confidence in the stock market.

The breakneck pace of share purchases was enough to put a dent in Berkshire’s cash pile, which Buffett has often compared to a war chest. His cash fell to $106.3 billion at the end of March from just under $147 billion at the end of the year. The company’s first-quarter report showed it had sold $9.7 billion of shares during the period, indicating it was a net buyer of $41 billion of shares at the start of the year, one of its busiest quarters in recent history. .

The report showed that Berkshire had greatly increased its ownership of energy company Chevron, listing its $25.9 billion stake as one of its top five holdings in a stock portfolio now worth $390 billion. The investment in Chevron follows the purchase of billions of dollars worth of shares in oil company Occidental and printer and computer maker HP this year.

Buffett said on Saturday that he had also directed the company to buy millions more shares in Activision Blizzard, the game company that Microsoft agreed to acquire in January. Berkshire had bought just under 15 million shares, less than 2 percent of Activision’s outstanding shares, in the past year before the deal was agreed, purchases led by one of Buffett’s two investment lieutenants. Berkshire now owns 9.5 percent of the company, he said, which would make it the largest shareholder.

The 91-year-old CEO added that he was eager to take advantage of the discount at which Activision shares were changing hands on the market compared to the $95 per share price Microsoft agreed to pay.

To finance those investments, in addition to the $3.2 billion spent during the quarter on share buybacks, Berkshire sold or let more than $44 billion worth of Treasuries and other securities mature in the quarter.

Buffett has polished his trading credentials in recent months after remaining on the sidelines for much of the pandemic era. In March, he closed an $11.6 billion deal to take over insurance maker Alleghany.

The figures were released Saturday as tens of thousands of Berkshire shareholders flocked to Omaha to hear from the billionaire investor at the company’s annual meeting, the first held in person since 2019.

Berkshire reported net income of $5.5 billion in the first three months of 2022, less than half the level generated a year earlier. The company’s results included a $1.6 billion impact from losses on its investment and derivatives portfolio.

Yield since start of 2020 (%) line chart showing Berkshire stock has taken the lead in the broader market

Excluding those changes, which Buffett has criticized as “typically meaningless” as US accounting rules require changes in the value of his investment portfolio to be included in quarterly results, the company reported operating profit of 7,040 million dollars. That was marginally above last year’s gains.

The results showed the company’s manufacturing, utility and rail businesses reported higher profits in the quarter, compared to prior year levels.

Revenue from the BNSF railroad, which Buffett described in a February letter to shareholders as one of the conglomerate’s four giants, rose 11 percent to $5.8 billion. The company warned that supply chain disruption, including lower car shipments due to chip shortages, had affected shipment volumes.

“In addition, the development of geopolitical conflicts in 2022 has contributed to the disruption of supply chains, resulting in increased costs of basic products, goods and services in many parts of the world,” it added.

Its division that makes modular homes, Clayton Homes, reported a 21 percent increase in sales. And while he said demand remained strong, he warned that rising mortgage costs “would likely slow demand for new home construction, which could negatively affect our business.”

Profits at its insurance businesses, which include Geico, all but dried up, falling to just $47 million from $764 million a year earlier. Geico’s unit posted an underwriting loss in the period, blaming those profits on increased insurance claims and higher payout costs.

Berkshire shares have outperformed the US stock market this year, rising 7.5 percent compared to a 13 percent drop in the benchmark S&P 500 index.

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