Berkshire Hathaway's (BRK.A, Financial) (BRK.B, Financial) second-quarter results told us a lot about the company's performance during the first half of 2022 as the economic outlook becomes uncertain.
The report also gave us a look at how Warren Buffett (Trades, Portfolio) is navigating the current market.
Berkshire’s investing activities
During the first quarter of the year, Berkshire deployed around $151 billion into equities. It ended 2021 with a cash pile of $140 billion, but this had dropped to $106 billion at the end of the first quarter.
We know the stocks Buffett was buying thanks to the comments he made at the company‘s annual meeting and the information contained within Berkshire’s 13F report. The "Oracle of Omaha: was adding to his favorite positions, notably Occidental Petroleum Corp. (OXY, Financial) and Chevron Corp. (CVX, Financial), and increasing his stake in merger arbitrage trade Activision Blizzard Inc. (ATVI, Financial).
The conglomerate also announced the acquisition of Alleghany Corp. (Y, Financial).
However, while the investor was relatively active during the first quarter of the year (Berkshire also spent $3.1 billion buying back its own stock), the company was relatively sedate during the second quarter.
Taking a different stance
We will not know the exact names Buffett was buying in the second quarter until next week, but we do know that Berkshire was a net buyer of stocks during the period.
According to the corporation's quarterly filing, it spent $3.8 billion on equities during the second quarter. Based on 13D filings published with the SEC so far, we know the majority of this investment was devoted to Occidental.
In the second half of June and in July, Berkshire spent around $1 billion increasing its position in the oil and gas producer. Considering the fact the conglomerate now owns more than 20% of the company, including warrants and excluding preferred shares, the speculation that it could be considering an acquisition has risen considerably in recent months.
As well as spending $3.8 billion acquiring public market stocks, Buffett also spent $1 billion of the conglomerate's cash buying its own shares, a significant slowdown from the activity in the first quarter.
The fact Buffett was so active in the first quarter and then decided to virtually cease all purchases in the second quarter is quite notable. Equity markets were particularly volatile between March and the end of June, resulting in Berkshire having to report an investing loss of $53 billion on its portfolio of securities.
While this is only a paper loss and does not really reflect anything fundamentally important, it does illustrate the pain investors went through during the period.
The operating business jumps ahead
The operating side of the business performed far better. Operating earnings, which include businesses such as BNSF and Berkshire Hathaway Energy, totaled $9.3 billion in the second quarter, a 38.8% increase from the same quarter a year ago.
I have always believed that Buffett, in his position as CEO of Berkshire, a sprawling conglomerate with tens of thousands of employees, has an unrivaled view over the state of the U.S. and the global economy as he can see how his underlying businesses are performing.
Therefore, the fact he was sitting on his hands in the second quarter may illustrate he believes the outlook for the economy is deteriorating, even though the group’s operating earnings jumped during the period. It could also signify that he does not believe the market has dropped enough to throw up the sort of bargains he saw in the first three months of the year.
I do not like second-guessing Buffett, so these are only speculations on my part. Still, I cannot ignore the fact that it was a relatively quiet quarter for Berkshire, and that could be significant.
