Warren Buffett, the legendary investor and CEO of Berkshire Hathaway, has significantly increased his company’s financial position. Last quarter, Berkshire Hathaway’s cash pile swelled to an unprecedented $276.9 billion. This remarkable increase came as Buffett sold substantial portions of his stock holdings, including a major reduction in Apple shares.
The Omaha-based conglomerate’s cash hoard soared from the previous record of $189 billion, set in the first quarter of 2024. This surge occurred after Buffett divested nearly half of his stake in Apple during the second quarter. The continuous selling streak has been a trend for Berkshire, marking seven consecutive quarters of stock sales. In the second quarter alone, Buffett sold over $75 billion in equities, bringing the total stock sales for the first half of 2024 to more than $90 billion.
Buffett’s strategic moves extended into the third quarter, with Berkshire trimming its second-largest stake, Bank of America, for 12 consecutive days. This aggressive selling indicates Buffett’s cautious approach toward the current market valuations.
Boost in Operating Earnings
Berkshire’s operating earnings, which include profits from its fully-owned businesses, saw a substantial rise. The increase was primarily driven by strong performance from Geico, the company’s auto insurer. Operating earnings for the second quarter totaled $11.6 billion, a 15% increase from $10 billion a year ago.
Despite the massive cash reserves, Buffett remains cautious about deploying capital. During Berkshire’s annual meeting in May, he expressed concerns about high prices and the need for attractive investment opportunities. “We’d love to spend it, but we won’t spend it unless we think [a business is] doing something that has very little risk and can make us a lot of money,” Buffett stated.
Limited Stock Buybacks
Berkshire’s stock buyback activities slowed significantly in the second quarter. The company repurchased only $345 million worth of its own stock, a stark contrast to the $2 billion repurchased in each of the prior two quarters. This cautious approach reflects Buffett’s strategic patience in the face of high market valuations.
Market Conditions and Economic Concerns
The S&P 500 has experienced a significant surge over the past two years, driven by investor optimism that the Federal Reserve would manage inflation with higher interest rates while avoiding an economic recession. The index is up 12% in 2024. However, recent weak economic data, including a disappointing July jobs report, have raised concerns about a slowing economy. The Dow Jones Industrial Average dropped 600 points following the jobs report. Additionally, investor worries about high valuations in the technology sector have grown, despite the sector leading the bull market due to enthusiasm over artificial intelligence advancements.
Geico’s Strong Performance
Geico, which Buffett has affectionately called his “favorite child,” reported nearly $1.8 billion in underwriting earnings before taxes in the second quarter. This figure is more than three times the $514 million reported a year ago. The robust performance highlights Geico’s critical role in Berkshire’s portfolio.
Mixed Results from Other Businesses
While Geico showed impressive growth, other segments of Berkshire’s business had mixed results. Profit from BNSF Railway remained steady at $1.6 billion, matching last year’s performance. However, Berkshire Hathaway Energy’s utility business saw its earnings fall to $326 million, nearly half of the $624 million reported in the same quarter a year ago. The utility business continues to face challenges, including potential wildfire liabilities.
Conclusion
Berkshire’s net earnings, which include short-term investment gains or losses, fell to $30.3 billion in the second quarter from $35.9 billion a year ago. Buffett advises investors to disregard quarterly fluctuations in unrealized gains on investments, describing them as “extremely misleading.”
Despite the cautious approach to stock buybacks and investments, Buffett’s strategy of building a substantial cash reserve positions Berkshire Hathaway strongly for future opportunities. As economic conditions evolve, the Oracle of Omaha remains vigilant, ready to capitalize on attractive investment prospects while maintaining a prudent stance in an unpredictable market.
