1651333670 Warren Buffetts Berkshire Hathaway bets heavily on US stock market

Warren Buffett’s Berkshire Hathaway bets heavily on US stock market

Warren Buffett’s Berkshire Hathaway made a big bet on the U.S. stock market in the first quarter, buying $51.1 billion worth of shares.

It’s a dramatic shift from an investor who has been a stock seller for the past two years, warning of high valuations and little in the market that would yield significant returns.

But global financial markets have weakened in recent months as Russia invaded Ukraine and fears of an economic slowdown in China shook investor confidence.

That’s given it a more attractive entry, according to analysts and investors, who were warmed by the so-called Oracle of Omaha’s vote of confidence in the stock market.

The rapid pace of stock purchases was enough to put a dent in Berkshire’s cash pile, which Buffett often likened to a war chest. Its cash position 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 that it had sold $9.7 billion of shares during that period, suggesting it was a net buyer of $41 billion of shares to start the year — one the most active quarters in recent memory.

Line chart of cash and cash equivalents ($Bn) held by Berkshire Hathaway, showing stock purchases draining Berkshire's war chest

The report showed that Berkshire had sharply increased its stake in energy company Chevron, listing its $25.9 billion stake as one of the top five holdings in a $390 billion stock portfolio. The investment in Chevron comes alongside multibillion-dollar stock purchases by oil company Occidental and printer and computer maker HP this year.

To fund these investments, as well as $3.2 billion spent on stock repurchases during the quarter, Berkshire sold or matured more than $44 billion worth of government and other securities during the quarter.

Buffett has been beefing up his dealmaking credentials in recent months after sitting on the sidelines for much of the pandemic era. In March, he completed a $11.6 billion deal to take over the insurer for toymaker Alleghany.

The numbers were released Saturday as tens of thousands of Berkshire shareholders descended on Omaha to hear from the billionaire investor at the company’s annual meeting, its first in-person since 2019.

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

Line chart of performance since the beginning of 2020 (%) showing that Berkshire's stock has taken the lead over the broader market

Excluding those fluctuations, which Buffett has criticized as “usually meaningless” since U.S. accounting rules require changes in the value of its investment portfolio to be included in quarterly results, the company reported $7.04 billion in operating income. This was slightly above the previous year’s result.

Results showed that the company’s railroad, utility and manufacturing businesses reported higher earnings in the quarter than a year earlier.

Revenue for 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, has weighed on shipping volumes.

“Furthermore, the development of geopolitical conflicts in 2022 has contributed to disruptions in supply chains, leading to rising costs of raw materials, goods and services in many parts of the world,” she added.

Warren Buffetts Berkshire Hathaway bets heavily on US stock market

Its division that makes modular homes, Clayton Homes, reported a 21 percent increase in sales. And while demand has remained strong, she warned that rising mortgage costs “are likely to slow demand for new housing, which could be detrimental to our businesses.”

Profits from its insurance companies — which includes Geico — were nearly wiped out, falling to just $47 million from $764 million a year earlier. The Geico unit reported an underwriting loss during the period, blaming those benefits for an increase in insurance claims and higher payment costs.

Berkshire shares have outperformed the U.S. stock market this year, up 7.5 percent, compared to a 13 percent decline in the benchmark S&P 500.