What's going on?
Berkshire Hathaway reported mixed quarterly earnings over the weekend, as CEO Warren Buffett twiddles his thumbs till a deal worth making finally pops up.
What does this mean?
Berkshire is such a sprawling conglomerate that it was bound to overachieve in some parts of its business and underachieve in others last quarter, as different economic factors stirred up both tailwinds and turbulence. Its railroad, utilities, and energy segment, for example, grew 11% versus the same time the year before, with post-pandemic demand continuing to rebound. Its insurance business, on the other hand, had plenty of payouts to make following Hurricane Ida and the European floods, bringing the segment to a loss. The company’s stock market investments were a mix of both: they brought in almost $4 billion, sure, but that was down around 80% from the same time last year. All in all, the good couldn’t outweigh the bad: Berkshire’s total profit came in 60% lower than the same time a year ago.
Why should I care?
The bigger picture: Berkshire has too much cash.
Berkshire’s hasn’t made any sizable acquisitions for a few years, mostly because it’s been put off by record-high stock valuations. So the company’s instead been spending the cash it’s saved on buying back its own shares, including another $8 billion worth last quarter. But even that’s barely made a dent in its cash pile: it ended last quarter with a record-high $149 billion.
For markets: Is Buffett behind the times?
Warren Buffett has cultivated his messianic investing reputation for a reason: between 1965 and 2020, his firm’s investments generated an average return twice as much as the US stock market every year (tweet this). Focus on the last five years, though, and you’ll see it’s slipped behind the wider market, which could be because Berkshire’s preferred “value stocks” – those that look cheap relative to the market – have been underperforming their expensive, fast-growing equivalents.