Posted on 08/17/2022 8:03:06 AM PDT by SeekAndFind
Imagine a stack of $1 bills that reaches nearly 3,000 miles into the sky. That’s how high $44 billion would be. And it’s a pretty good picture of how much money Warren Buffett’s Berkshire Hathaway (BRK.A 1.35%) (BRK.B 1.26%) lost in the second quarter of 2022.
How did one of the biggest companies on the planet led by one of the most successful investors of all time lose that much money? It was surprisingly easy to do.
Let’s first be clear on one important point: Berkshire’s loss was only on paper. The company’s businesses generated Q2 revenue of nearly $76.2 billion with total expenses of a little under $65 billion. That translates to an operating profit of over $11 billion.
But Berkshire reported a net loss of $43.8 billion. So where did this staggering loss come from? The company recorded a loss of $66.9 billion on investments and derivative contracts.
Most of this sizable loss stemmed from the dismal performance of many stocks in Berkshire’s portfolio during the second quarter. Only $65 million of the loss related to derivative contracts.
Also, nearly all of the investment loss was unrealized. In other words, Berkshire didn’t sell the stocks at a lower price than it paid for them. It simply had to book a loss because the share prices fell during the quarter. The giant conglomerate actually made a small profit of $32 million on stocks that it did sell during Q2.
Some stocks took a much bigger toll on Berkshire’s bottom line than others did. Apple (AAPL -0.09%) ranked as one of the biggest culprits in the huge net loss.
The tech stock made up nearly 43% of Berkshire’s total holdings at the end of the first quarter. Berkshire added to its stake in Apple during Q2. But the stock fell nearly 22% during the period. That steep decline combined with Berkshire’s large position weighed heavily on the company’s bottom line.
Bank of America (BAC 1.08%) also contributed significantly to Berkshire’s big investment loss. The bank stock is Berkshire’s second-largest position, making up around 10% of its portfolio. BofA’s shares sank 24% during Q2.
We can’t overlook American Express (AXP -0.03%), either. The financial services giant is Berkshire’s fourth-largest holding. And its shares plunged 26% in Q2.
Of course, these three stocks weren’t the only stinkers in Berkshire’s portfolio. However, they comprised nearly 60% of the conglomerate’s total holdings as of the end of the first quarter. When these stocks fall significantly, Berkshire is very likely to record an unrealized investment loss.
If we asked Buffett about the Q2 net loss of almost $44 billion, he’d probably reply that it was essentially meaningless. Here’s what Berkshire Hathaway had to say in its regulatory filing for the second quarter:
We believe that investment gains/losses, whether realized from sales or unrealized from changes in market prices, are often meaningless in terms of understanding our reported consolidated earnings or evaluating our periodic economic performance. We continue to believe the investment gains/losses recorded in earnings in any given period has little analytical or predictive value.
Buffett bought more shares of Apple during the first quarter when its share price declined. He bought more shares again in Q2. The legendary investor understands that stock prices often don’t accurately reflect the real value of the underlying business.
In reality, you’ll never see a stack of $1 bills that’s nearly 3,000 miles tall. And Buffett will probably never see a true net loss of close to $44 billion.
87,000 IRS agents need to look into this.
Didn’t he say he was going 100% hot-air ?
Where to begin...okay, if you don’t need to have the actual cash right now, at today’s price, then a decline of x percent in present value isn’t relevant. However, the value of assets like Apple are almost entirely invested in China and rely on the good will of the CCP. The CCP is not, by the standards of the free world’s businesses, rational. The CCP could, wipe out the entire value of Apple’s Chinese investments in a moment. To continue buying into a brand almost entirely invested in the good will of the CCP is not a rational strategy. As long as the CCP doesn’t interfere with Apple’s business then the stock will probably be a good “bet.” But that’s all it is, a bet...a wager. Admittedly I am no Warren Buffett, but I have steered clear of anything that has to do with China including Apple and Black Rock, among others. Bets on the CCP’s good will are like playing Russian roulette.
As US government policies continue to drive makers of physical tangible
actual 'things' out of business, the US economy may enter a new type of Depression.
What this new type of economic condition will actually be called
has not been determined as of yet.
But I will suggest a temporary working title:
"The Global Reset Double-Plus-UnGood Economic Total Eff-Up".
Many people will starve - according to plan.
Should I cheer...no.
It’s not just Buffet that’s losing, his investors do to
It is no longer Bank of America, it is “Bank of Several States”. I’m a Bank of America customer and I can tell you that Bank of America is dying on the vine. They’ve been closing branches all over the country, their customer service sucks, and they have started putting holds on payroll checks for 4 to 5 days to “guarantee” the funds.
Short-term losses, he’ll make it all up and more. The Buffet way is patience.
From the net:
“Do you want results only for how much is Warren Buffet stock up over time??
3,800,000%”
Sounds like my FA is taking advice from them. If I never own another bond for as long as I live it will be too soon. Problem is, you’re sort of stuck with them.
I gave up on BA ages ago when the signs in the lobby were almost all in spanish. Before that they cashiered my personal banker. The final straw is when a latno teller commented on my account balance. I walked out the door with three cashier’s checks that day.
My current bank was fine for years but now they have started to put holds on deposits from clients that are major oil companies. Their days may become numbered but not sure where to go.
Go bank at a small credit union.
The one I have had an account with since I was 14 has gone woke. I keep the small account there for stupid sentimental reasons.
And he bought more when it was cheap. Operative word: "was". Apple has gone up over 25% since the beginning of July.
Also the article gave no indication of what percentage the $44 billion was. At today's market capitalization of Berkshire, that's only a 6.5% loss. That's far better than I did in the first two quarters this year.
Yes, BUT some of his deals were only for him because he could swoop in with billions of dollars and get very favorable terms. Individual investors could bever hope to get many of the deals he had.
So comparisons are specious.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.