Warren Buffett bought more stock for his hedge fund and logged a massive paper loss during the third quarter, according to earnings released on Saturday.
I wrote the exact same opening line last quarter while documenting results from Berkshire which, of course, isn’t really a hedge fund. It just looks like one to some people, sometimes. A hedge fund built atop a giant insurance float.
Buffett loves the insurance business, but it was a drag again last quarter, particularly at GEICO. “15 minutes could save you 15% or more on car insurance,” as the slogan goes, but running GEICO could lose you three quarters of a billion or more, depending on the quarter.
Of Berkshire’s net $962 million underwriting loss in Q3, $759 million was attributable to GEICO. It’s been over a year since GEICO turned a profit (figure below).
Note from the chart that GEICO generated a massive gain during the second quarter of 2020. That was thanks in no small part to less driving amid the pandemic lockdowns.
The company’s pre-tax underwriting losses in 2022 “reflect increased claims severities, primarily due to significant cost inflation in property and physical damage claims, which began to accelerate in the second half of 2021 and have continued through 2022,” Berkshire said Saturday, adding that “increases in used car prices are producing increased claims severities on total losses and shortages of car parts are contributing to elevated claims severities on partial losses.” Inflation swindles everybody, as Buffett put it in April.
Berkshire’s Q3 report suggested Buffett was a net buyer of equities again during the third quarter in roughly the same amount as Q2 (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.
That said, their cash pile rose by more than $3.5 billion in the three-month period through September (figure below).
That was the first increase in a year. Buybacks were a little over a billion, bringing this year’s total to $5.25 billion.
Berkshire’s net loss for the quarter was $2.69 billion, attributable (obviously) to Buffett’s massive investment portfolio.
For those interested, the figure (below) gives you some context for the impact of market swings on Berkshire’s bottom line.
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.
“I am not the hedge fund. You’re the hedge fund. I’m ‘The Conglomerate.’ So, that’s what you call me, you know?”
Operating income, which strips out the gains or losses on the investment portfolio, rose 20% YoY to $7.76 billion.
