Takeaways From Berkshire Results
Warren Buffett’s Berkshire Hathaway Inc posted a huge net loss of over $25 billion in the previous history. This is one of the biggest losses recorded in history. It was largely caused by the new accounting rule that Warren Buffet does not agree with. The rule requires all companies to report any new changes in the value of their investments as a part of their earnings. Although this might seem like a minor figure for most corporations, it leads to big losses and gains each quarter for Berkshire Hathaway’s $170 billion stock portfolio.
The company’s operating earnings soared 71 percent compared to the previous year. This is based on Buffet’s preferred metric as it excludes stock swings and includes the performance of Berkshire’s underlying businesses. The units benefitted from lower corporate tax rate and better insurance results.
Buffett’s annual letter to the company’s shareholders mentioned his lookout for the next purchase deal. He dismissed several prospects due to their sky high prices. With no major acquisition in the last three years, Berkshire has been using its cash to buy back its own shares with $1.3 billion in 2018. It also snapped up stocks of other rising companies.
According to analysts, the cash has dragged down Berkshire’s ability to return more. Although the book value of the company increased at the double the rate of the S&P 500 during Buffett’s career, it has trailed the index for the last ten years. Buffet mentioned about retiring the metric due to its loss of relevance in today’s economy in his annual letter to the company’s annual letter.
Although Buffet wants to spend a pile of cash in a giant acquisition, he does not see it happening in the near future due to sky-high prices for decent long term prospects. Yet he is still on the lookout for an elephant-sized acquisition.
As Berkshire’s cash pile grew to $112 billion, it has become difficult for Buffet to put it to the cash to work as fast as the firm accumulates it. Buffett made his name by consistently staying ahead of the broader market. However, things seem to have become difficult with Berkshire’s tremendous growth.
In fact, Berkshire repurchased its shares worth $418 million in stocks in the fourth quarter. The board had loosened its policy in July on stock buybacks which allowed Vice Chairman Charlie Munger and Buffett to buy back stock whenever their prices when below what they thought to be the intrinsic value.
