Buffett Buys $3.8 Billion In Stocks, Loses 10 Times That On Paper

Warren Buffett bought more stock for his hedge fund and logged a massive paper loss during the second quarter, according to results out Saturday.

Wait. I’m sorry. It’s not a hedge fund. It just looks like one to some people, sometimes. A hedge fund built atop a giant insurance float.

But that’s not what Berkshire is. Berkshire’s a “conglomerate.” (“I am not the hedge fund. You’re the hedge fund. I’m ‘The Conglomerate.’ So, that’s what you call me, you know?”)

Berkshire’s Q2 report showed Buffett was a net buyer of equities again during the second quarter. $3.9 billion worth, or thereabouts (figure below).

A string of investments during the first quarter, including big bets on big oil, resulted in more than $41 billion in net purchases, the most aggressive spree in at least a dozen years. By contrast, the streak of net sales which ended late last year was the longest in data back to 2008.

The continuation of net stock purchases following Buffett’s Q1 binge may further allay concerns that he and Charlie Munger were becoming complacent, although their cash pile barely fell in the three-month period through June.

Buybacks dropped to just $1 billion during the second quarter, the least since Q3 2019 (figure below).

In 2021, Buffett repurchased a record $27.1 billion in Berkshire stock.

Needless to say, Berkshire showed a massive paper loss on its equity portfolio amid large declines for stocks during the period.

Net earnings in Q2 very nearly matched the plunge that accompanied the onset of the pandemic two years ago. The paper loss was almost $50 billion then. It was more than $43 billion last quarter (figure below), attributable entirely to the investment portfolio.

By and (very) large, those oscillations are meaningless, and Buffett is always keen to remind investors as much. It’s just an accounting thing that goes along with running a conglomerate that happens to have a giant equity portfolio.

What wasn’t totally meaningless, though, was a near half-billion underwriting loss at Geico, which Berkshire explained in part by reference to inflation. “GEICO’s pre-tax underwriting loss… reflected increased claims severities, primarily due to significant cost inflation in automobile markets, which began to accelerate in the second half of 2021,” the company said, adding that “increases in used car prices are producing increased claims severities on total losses and shortages of car parts are contributing to increased claims severities on partial losses.”

Not only that, it’s also getting more expensive to be injured in a car accident, apparently. Berkshire said injury claims severities “continue to trend higher than general inflation rates.”

Berkshire had $105.4 billion in cash and equivalents on June 30, essentially unchanged from Q1. Maybe Buffett should buy Twitter. I hear it might be for sale.

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