I say it every quarter: They always sneak up on me.
“They” means Berkshire weekends.
And every quarter, I repeat myself, mostly verbatim. I only know one way to cover Warren Buffett, and that’s by reiterating that although I don’t generally bother myself with what any industry “legends” were (or weren’t) buying (or selling) last quarter, you can’t not mention Berkshire’s “earnings” (that term is something of a misnomer in this context, hence the scare quotes).
Every three months, market participants are compelled to take a few valuable minutes away from their weekend to marvel at an accounting statement from Nebraska’s favorite granddad. For what it’s worth (which is a lot, monetarily anyway), Berkshire’s net income was $10.3 billion in Q3 (figure below).
That was down 66% YoY, but that’s a nonsense comp. Net earnings includes oscillations on Berkshire’s massive equity book. Apropos, that giant ~$50 billion “paper” loss from Q1 2020 is what happens when you run a de facto hedge fund and stocks crash.
Buffett prefers people pay no attention to net income because, again, it’s prone to wild swings. Operating income was $6.47 billion, stable sequentially and up 18% YoY.
Buybacks reaccelerated to $7.6 billion during the quarter (figure below), the third-most since a 2018 policy change.
Buffett’s buyback spree slowed to just over $6 billion in Q2, the least in a year, but even that figure counted as the fourth-highest since 2018. Suffice to say Buffett and Munger think the stock is still trading below intrinsic value — “conservatively determined.”
Berkshire has “too much money,” as Bloomberg put it Saturday, and despite plowing billions into buybacks, the conglomerate’s cash pile hit a record.
The sum of cash, cash equivalents and T-Bills was more than $149 billion for Q3, up more than $5 billion (figure below).
The old record was $147 billion in the second quarter of 2020.
Most of the color around the pandemic was unchanged in the filing. “While customer demand for products remained relatively high, earnings in the third quarter of 2021 were sequentially lower than the second quarter,” Berkshire said, noting that “several businesses experienced higher materials, freight and other input costs attributable to ongoing disruptions in global supply chains.”
Record profits for Buffett’s railroads and energy interests were juxtaposed with an underwriting loss of more than three quarters of a billion dollars.
All of this is meaningless, of course. Or at least it is to everyday people, including the vast majority of market participants. That’s always the irony of Berkshire’s earnings — they’re front-page financial news despite being mostly irrelevant when Buffett isn’t buying something.
I’ll just recycle my usual closing remarks for any and all Buffett coverage. I’m steadfast in the contention that everyday investors are too enamored with Warren. It’s not that folks shouldn’t admire what he’s built, it’s just that the tendency for retail investors to believe they can “invest like Buffett” is woefully misguided. Put simply (and “put” is a kind of double entendre), he runs a massive hedge fund built atop Berkshire’s float.
I’d roll out the old “don’t try this at home” quip, but that’s the whole point — you can’t.
Sadly, too many people have failed to see that for any portfolio as large as Berkshire’s finding something to move the performance needle significantly is virtually impossible, especially when most large targets are vastly overpriced, at least by Buffett and Ben Graham”s standards. Undoubtedly there might be some giants in waiting in the dross that is the market, but they, too, are mostly overpriced and it would take 30 of them to make up the earnings boost from one good “adult” company. I can sympathize with WB because even with my miniature pile, I find myself with new money every month that must be put to work in this crappy environment of low bond yields and overpriced stocks. When I was acquiring my assets I never really thought about how hard it would be to find new stuff for all the cash that needed work. I feel ya’ Warren.
I don’t “dislike” Buffett. There’s nothing to “dislike,” really. I’ve just always contended that Jack Bogle should be more revered. It’s apples to oranges in many respects, and in the era of Robinhood and meme manias, the whole discussion is becoming anachronistic, but Bogle doesn’t get the credit he deserves in discussions about long-term investing and prudent capital management. Again, not that anyone cares about such things anymore.
Bogle is certainly more relevant to most retail investors.
He created investment possibilities that hadn’t been easily available, before his low cost mutual funds.
Bogle is kind of an anomaly in a Capitalistic system. He ran a private company, but worked to create wealth for others. I’m sure he did just fine. But compare him to the Johnson family of Fidelity, who built wealth for themselves. Vanguard could have charged higher fees and grown almost as fast. Bogle seemed focused on building wealth for his clients. Who else in the private sector does that?