Warren Buffett’s Berkshire Hathaway bets big on US stock market

Warren Buffett’s Berkshire Hathaway bet big on the US stock market in the first quarter, buying $51.1bn of shares, as he put the sprawling conglomerate’s cash pile to work as financial markets slid from record heights.

It is a dramatic shift from an investor who had been a seller of stocks for the past two years, warning of high valuations and little in the market that would generate substantive returns.

But global financial markets have weakened in recent months, as Russia invaded Ukraine and fears of a Chinese economic slowdown have rattled investor confidence.

That has offered him a more attractive entry, according to analysts and investors who have been warmed by the vote of confidence in the stock market from the so-called Oracle of Omaha.

The furious pace of stock purchases was enough to put a dent in Berkshire’s cash pile, which Buffett has often likened to a war chest. Its cash fell to $106.3bn at the end of March from just under $147bn at year end. The company’s first quarter report showed it had sold $9.7bn of stock during the period, indicating it was a net buyer of $41bn of shares at the start of the year — among its most active quarters in recent memory.

The report showed Berkshire had sharply increased its ownership of energy company Chevron, listing its $25.9bn stake as one of its top five holdings in a stock portfolio now worth $390bn. The investment in Chevron accompanies billions of dollars worth of stock purchases in oil major Occidental and printer and computer manufacturer HP this year.

Buffett said on Saturday that he had also directed the company to purchase millions more shares in Activision Blizzard, the gaming company that Microsoft agreed to acquire in January. Berkshire had bought just under 15m shares — less than 2 per cent of the outstanding Activision stock — last year before the deal was agreed, purchases directed by one of Buffett’s two investment lieutenants. Berkshire now owns 9.5 per cent of the company, he said, which would make it the largest shareholder.

The 91-year-old chief executive added that he was keen to take advantage of the discount at which Activision shares were changing hands on the market compared to the $95 a share price Microsoft agreed to pay.

To fund those investments, as well as $3.2bn spent during the quarter on share buybacks, Berkshire sold down or let Treasuries and other securities worth more than $44bn mature in the quarter.

Buffett has burnished his dealmaking credentials in recent months after sitting on the sidelines for much of the pandemic era. In March he clinched an $11.6bn deal to take over insurer-to-toy manufacturer Alleghany.

The figures were disclosed on Saturday as tens of thousands of Berkshire shareholders descended on Omaha to hear from the billionaire investor at the company’s annual meeting, the first one held in person since 2019.

Berkshire reported net income of $5.5bn in the first three months of 2022, less than half the level generated a year earlier. The company’s results included a $1.6bn hit from losses on its investment and derivatives portfolio.

Excluding those swings, which Buffett has criticised as “usually meaningless” as US accounting rules require changes in the value of its investment portfolio to be included in quarterly results, the company reported operating earnings of $7.04bn. That was marginally above year ago earnings.

The results showed the company’s railroad, utilities and manufacturing businesses reporting stronger profits in the quarter, compared to year ago levels.

Revenues at the BNSF railroad, which Buffett described in a February letter to shareholders as one of the conglomerate’s four giants, climbed 11 per cent to $5.8bn. The company warned that supply chain disruption, including lower auto shipments because chip shortages, had weighed on shipping volumes.

“Further, the development of geopolitical conflicts in 2022 have contributed to disruptions of supply chains, resulting in cost increases for commodities, goods, and services in many parts of the world,” it added.

Its division that makes modular homes, Clayton Homes, reported a 21 per cent increase in sales. And while it said demand had remained strong, it warned that rising mortgage costs would “likely slow demand for new housing construction, which could adversely impact our businesses.”

Profits at its insurance businesses — which includes Geico — were nearly wiped out, falling to just $47mn from $764mn a year earlier. The Geico unit reported an underwriting loss in the period, blaming an uptick in insurance claims and higher payment costs on those benefits.

Berkshire shares have outpaced the US stock market this year, rising 7.5 per cent compared to a 13 per cent decline by the benchmark S&P 500.