Warren Buffett’s conglomerate, Berkshire Hathaway, recently released its financial report for the third quarter of 2023, and the numbers tell an interesting story. The company reported a substantial loss of $12.8 billion, equivalent to $8,824 per Class A share. This is a significant contrast to the previous year’s figures, where they reported a loss of $2.8 billion or $1,907 per Class A share.
It’s important to note that a considerable portion of these losses is unrealized. Berkshire Hathaway did not actually sell most of its stocks during this period, and their largest holding is a massive stake in Apple. Accounting regulations necessitate including the value of these investments in their earnings report. At the end of the quarter, these investments were valued at $341.1 billion, a decrease from the previous quarter’s valuation of $353 billion.
However, Warren Buffett has consistently advised investors to focus on Berkshire’s operating earnings, as these are a more reliable measure of the company’s performance, excluding the volatility of investment values. By this measure, Berkshire reported a remarkable 41% increase in operating profit, amounting to $10.8 billion, or $7,437.15 per Class A share. This is a substantial improvement compared to the previous year’s figures, which stood at $7.65 billion or $5,215.60 per Class A share.
Analysts surveyed by FactSet Research had an average expectation of $6,540.23 for Berkshire’s operating earnings per share, making the actual performance even more impressive.
Berkshire Hathaway’s insurance unit played a pivotal role in mitigating the losses. The relatively low losses associated with major catastrophes, such as hurricanes, and the resurgence of Geico’s profits contributed to the company’s operating profit. In total, Berkshire’s insurers contributed $2.4 billion to the operating profit, a stark contrast to the $1.1 billion loss reported by the insurers in the previous year’s third quarter.
Aside from its insurance businesses, Berkshire Hathaway’s portfolio includes the BNSF railroad, major utilities, and a diverse assortment of manufacturing and retail companies, ranging from aviation parts maker Precision Castparts to beloved brands like See’s Candy, Dairy Queen, and Helzberg Diamonds.
During the quarter, Berkshire did repurchase $1.1 billion of its own stock. It’s worth noting that the pace of buybacks has slowed significantly compared to the first quarter, when the company bought back $4.4 billion worth of its shares. Warren Buffett typically initiates buybacks when he believes Berkshire’s shares are undervalued.
Despite the substantial stock buybacks, Buffett continues to hold a substantial cash reserve. Berkshire had $157.2 billion in cash at the end of the quarter, up from $147.4 billion at the end of the second quarter, demonstrating Buffett’s cautious approach in deploying capital in the market.
In summary, Warren Buffett’s Berkshire Hathaway faced a notable loss in the third quarter of 2023 due to unrealized investment losses. However, the company’s robust operating earnings and successful insurance unit contributed to its overall resilience in the ever-changing market landscape. With a focus on maintaining a strong cash position and judicious stock buybacks, Berkshire Hathaway remains a significant player in the U.S. market.