Buffett’s Berkshire plunges into market slump to buy stocks

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(Bloomberg) — Berkshire Hathaway Inc. by Warren Buffett follows an age-old saying: buy the dip.

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The conglomerate was a net buyer of shares in the quarter, reporting $45.2 billion in purchases net of sales in its second-quarter results released Saturday. It bought a total of $41.4 billion in shares in the first three months of 2022, after being a net seller in the second quarter of last year.

Berkshire stepped in when the S&P 500 lost 16% in the quarter. The Omaha, Nebraska-based company also reported operating profit of $9.2 billion as its insurance and railroad operations turned a profit.

Cathy Seifert, an analyst with CFRA Research, said one company showing potential warning signs is Geico, the company’s personal auto insurance unit. It reported an underwriting loss of $487 million, while the conglomerate’s other lines of insurance gained in addition to the division’s investment income.

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But Seifert said the report as a whole reflected “decent revenue growth, still decent demand for various goods and services, offset by higher input costs and stock market volatility.”

Berkshire said losses at Geico stemmed from higher claims due to rising used car prices and auto parts shortages. The company said the policies in effect declined even as it increased premiums, a potential sign that the company is losing market share as customers look elsewhere for better rates.

“They’re in a bit of a tough spot right now,” Seifert said, adding that the same trends are happening at other auto insurers, but seem to be hitting Geico particularly hard. “It’s probably a good idea to watch for further deterioration.”

The same weakness in the market that boosts Buffett’s purchasing power weighs on his company’s results, at least on paper. The company reported a net loss of $43.8 billion as a result of a $53 billion loss in the company’s investment portfolio. Berkshire downplays those results as a function of accounting rules, saying they provide a misleading picture of the company’s true performance.

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What Bloomberg Intelligence says:

Berkshire was a net buyer of shares in the second quarter at more than $45 billion, or $86.6 billion in 2022, versus a net seller of $16 billion in 2020-21. We think this price can continue and does not necessarily indicate that Buffett is bearish on his own stock; Redemptions have traditionally been a lower priority practice for the company’s capital. Second quarter $1 billion repurchases fell from their 2021 pace of approximately $7 billion per quarter.”

— Matthew Palazola, senior insurance industry analyst BI

Buffett’s appetite for his own stocks waned, even as he piled up stock elsewhere. Share buybacks totaled $1 billion in the second quarter, lagging behind the $3.2 billion in buybacks at the start of the year.

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The company also reported that Berkshire Hathaway Energy had acquired $870 million in common stock from Vice Chairman Greg Abel in June. The transaction was not previously disclosed.

Despite the many expenses, Berkshire made only a measly dent in his money stack. The company reported $105.4 billion at the end of June, barely a contraction from the $106 billion at the end of the first quarter.

The aggressive pace at which Berkshire shares of Occidental Petroleum Corp. acquired, has raised the question of whether Berkshire is looking to take over the energy giant. But the company did not provide any insight into its strategy in this quarter’s regulatory filing.

(Updates with analyst comments from the fourth paragraph.)

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