Monday, January 24

Buffett signals caution with Berkshire on stock sell-off streak

Warren Buffett is showing caution with the rising stock market as the billionaire investor extends his selling streak.

Buffett’s Berkshire Hathaway Inc. was a net seller of stock for the fourth consecutive quarter, a trend not seen in data going back to 2008. The company ended up selling nearly $ 2 billion more in stock than it bought during the last quarter. period, adding to a cash pile that rose to a record $ 149.2 billion.

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The selling streak indicates that Buffett has struggled to find bargains with the stock market hitting all-time highs. A large and flashy acquisition also eluded the conglomerate, as the 91-year-old and his investor delegates faced a combination of sky-high price tags and fierce competition from the wave of special-purpose acquisition companies.

“The big problem here is that Berkshire was again a net seller of stocks this quarter,” said Jim Shanahan, an analyst at Edward Jones, in a telephone interview. “That’s the main culprit” that the pile of cash continues to grow.

Berkshire’s sales appear to come largely from downsizing holdings in banks, insurance and financial investments, according to its third-quarter regulatory filing released Saturday. Berkshire has been cutting certain stocks in recent periods, spending the second quarter slashing its investment in General Motors Co. and withdrawing some of its pharmaceutical bets. The company is set to launch its third-quarter stock adjustments later this month.

While Buffett has been a consistent net seller for the past four quarters, those sales have been relatively small compared to the huge size of his stock portfolio. In the past nine months, he sold nearly $ 7 billion more in stock than he bought, about 2.2% of the fair value of Berkshire’s stock portfolio at the end of September.

Buffett warned investors in May that Berkshire might not have much luck closing deals as SPACs took over the market, although he also predicted that the boom would likely not last. Compounding the challenge, his most recent big acquisition, the $ 37 billion deal for Precision Castparts five years ago, resulted in a write-off that Buffett put right on his own doorstep.

Berkshire is not alone in spreading a pile of cash amid the pandemic. Inc., Alphabet Inc., Google’s parent company, and American Airlines Group Inc. are among the companies that accumulated significant stakes during the health crisis in a step that analysts say was likely to lead to some acquisitions.

And the growing pile of cash is better than the alternative in the eyes of investors, including Darren Pollock of Cheviot Value Management. Even though Buffett’s cash stock still rose to a record despite buybacks of $ 7.6 billion in the third quarter, Pollock says it’s a good sign of Berkshire’s health.

“We’re happy with it because the alternative is that the cash is not growing that much and that means the Berkshire operating companies are not as high-quality as we thought,” said Pollock, whose Cheviot owns shares in Berkshire. “Seeing that cash is increasing, seeing that it is deploying so much in a way that turns out to be buybacks, not acquisitions, but is being spent productively, is much better than the alternative of seeing cash stabilize or decline without other big ones. acquisitions “.

Here are some other key takeaways from Berkshire’s third quarter earnings on Saturday:

Berkshire appetite

Buffett has increasingly relied on share buybacks as a way to roll out billions of dollars. It has spent about $ 51 billion on share buybacks since a policy adjustment in 2018, topping the $ 31 billion used to buy shares of Apple Inc., Berkshire’s largest equity bet.

In the third quarter, Berkshire repurchased $ 7.6 billion in shares, surpassing the $ 6 billion of shares repurchased in the prior period.

BNSF Registry

Record earnings at Berkshire Railroad, BNSF, and strong earnings from its energy businesses helped increase operating profit by 18% at the conglomerate during the third quarter.

That also helped offset a painful quarter for Berkshire insurers. Those companies reported an underwriting loss that widened to $ 784 million amid higher catastrophe costs and worsening claims trends at auto insurer Geico.

© 2021 Bloomberg

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