Berkshire Hathaway posts $43.8 billion net loss in June 2022 quarter

It is not often that you expect Warren Buffett to go so wrong on his stock positions. But then, June 2022 was no ordinary quarter for the US markets. The Dow and the S&P gave up nearly 20% from the peak levels while the NASDAQ had given up more than 30% from peak levels. What is more, Berkshire Hathaway follows the policy of showing its profits and losses each quarter on MTM basis and booking any profits or losses to the income statement. These are not actual losses, but the MTM provisions have resulted in a loss in Q2.

Yes, the loss was massive. The net loss booked by Berkshire Hathaway in the June 2022 quarter was to the tune of $43.8 billion. This is despite the fact that Berkshire Hathaway had earned operating profits of $9.3 billion as gains from the reinsurance business and the BNSF railroad business. However, there were losses in the GEICO insurance underwriting business and massive portfolio losses in the quarter as it wrote off the MTM losses to its equity portfolio in the quarter. However, things would change with the revival in markets.

The insurance business overall showed good traction for Berkshire Hathaway, despite GEICO losses. There were a number of reasons. Firstly, rising interest rates and generous dividend pay-outs helped the investment portfolios of insurance companies to generate more money from investments. At the same time, the persistent strengthening of the US dollar (largely due to its exorbitant privilege of being the trading currency of choice), also boosted the profits of Berkshire Hathaway from its European and Japanese debt investments.

One thing is evident that Berkshire Hathaway still has a lot of cash on its books. It did slow the purchase of stocks as well as its buyback program in the second quarter as compared to the first quarter. However, with a cash stash of $105.4 billion in its books, Berkshire Hathaway surely has a problem of plenty, which is a good problem to have. Incidentally, there are many steady earning companies in the Berkshire Portfolios and this includes some famous names like Dairy Queen, Duracell, Fruit of the Loom and See's Candies.
Commenting on the impact of the ongoing war between Russia and Ukraine, Berkshire is quite emphatic that there has not been any immediate impact on the operations or the profitability of the company.

However, indirect effects have been there. For instance, some of its group companies have been impacted by the significant disruptions of supply chains and higher costs. However, Berkshire has clarified that the direct impact or direct losses due to the Russia war, the American sanctions or the Chinese lockdown have been limited.

Let us now turn to the big losses that Berkshire Hathaway suffered on its portfolio due to MTM losses. For instance, Berkshire Hathaway took a hit of $53 billion of losses from investments and derivatives. This includes huge price declines of more than 21% in 3 of its principal holdings viz. Apple Inc, Bank of America and American Express. These 3 stocks rank among the top 3 holdings of Berkshire Hathaway as of June 2022. However, Buffett has asked investors not to read too much into such stock fluctuations in the portfolio.

Buffett does have a valid point. For instance, in the first quarter ended March 2020, at the peak of the COVID sell-off, Berkshire Hathaway had lost $50 billion. However, by the end of the full year, Berkshire had not only recovered these losses but even ended with a net profit of $42.50 billion. Till now, Buffett has been bang on target with his strategy of keeping his holding period as “forever”. During the quarter, Berkshire Hathaway also made currency gains to the tune of $1.06 billion, especially on foreign debt. 

How did Berkshire deploy money in the June 2022 quarter? During the quarter, Berkshire continued its favourite practice of buying back its own stock. However, the buyback at $1 billion in the June 2022 quarter was much lower than $3.2 billion in the March 2022 quarter. Interestingly, Buffett had bought back stock worth $52 billion in 2020 and 2021. Fresh purchases in Q2 were limited to $6.15 billion compared to $51.1 billion in the March 2022 quarter. However, Buffett remains very positive on Occidental Petroleum and Chevron.