WArren Buffett enjoys cult status among investors around the world. Many take the now 92-year-old star investor as a role model, whose fortune was last estimated by the US magazine “Forbes” at exactly 99.9 billion dollars this year. In particular, those investors who rely on high-dividend value stocks appreciate and emulate the investment strategy that Buffett is pursuing with his investment company Berkshire Hathaway.
That seems quite promising, especially in the current stock market phase, in which interest rates are rising and the discounted valuation of fast-growing but generally unprofitable technology companies such as the Facebook parent company Meta and Amazon has therefore suffered significantly. In fact, Berkshire just made an interesting new stock purchase.
Overall, Buffett’s company invested a total of $3.7 billion in new stocks in the third quarter. It is particularly striking that the investor legend increased its stake in the oil company Occidental Petroleum from just under 17 percent to almost 21 percent. The Houston-based company, which produces crude oil and natural gas in the US, including in Buffett’s hometown of Oklahoma, but also in Colombia, Ecuador, Oman, Pakistan, Qatar, Russia and Yemen, is benefiting from rising energy prices. Occidental Petroleum’s share price has nearly doubled from just under $40 to $73 since Russia’s attack on Ukraine in February.
True to his nickname “Oracle of Omaha,” Buffett had previously made a name for himself with investments in oil companies that had long been penalized for climate risks on the stock exchange. The American oil company Chevron has been one of his five most important holdings since the beginning of 2022. Amid the Federal Reserve’s rate hikes this year, Berkshire Hathaway has also benefited from rising earnings from short-dated Treasury investments, where Buffett has invested the majority of his $109 billion cash reserves.
But Buffett’s holding and insurance company Berkshire Hathaway has not been spared from the price losses of the US stock market, which has amounted to 10 percent as measured by the Dow Jones standard stock index and almost 35 percent as measured by the Nasdaq 100 technology stock index. On the contrary: Over the weekend, Berkshire announced a loss of $2.7 billion for the third quarter of 2022, after a profit of $10.3 billion in the same period last year.
The reasons for the unusual losses: Shares held by Buffett worth a good $300 billion have lost almost $64 billion in value on the stock exchanges since the beginning of the year. And Hurricane Ian caused huge insurance losses in Florida on September 28th. However, analysts were positively surprised by an operating profit increase of 20 percent.
Buffett is also unperturbed by the stock price losses. He described them over the weekend as fluctuations that are “mostly meaningless”. This is based on the conviction that, on average and over the long term, share prices will outperform other yield-oriented securities. However, Buffett’s stock portfolio is heavily concentrated in a few stocks, which violates the rule of risk diversification. The five corporations Apple, Bank of America, Coca-Cola, American Express and Chevron account for 73 percent.
Berkshire’s business with auto insurance in the group’s subsidiary Geico again reduced profits for Buffett’s company. Increasing amounts of damage, also as a result of increased prices on the used car market, and a lack of spare parts caused Geico to record its fifth quarterly loss in a row.
The US rail freight company BNSF also made a loss. Its profit fell by 6 percent because it was only able to pass on part of the increased fuel costs for its diesel locomotives to customers.
The business of the group of companies in the energy, industry, services and retail sectors went well. As a result, operating profit rose by a fifth to $7.76 billion from $6.47 billion a year earlier.
Berkshire is itself listed on the stock exchange and is therefore also under the observation of stock analysts. Edward Jones & Co.’s Jim Shanahan spoke of strong results overall. Berkshire Hathaway is proving resilient to inflation, rising interest rates and supply chain issues, this equity analyst said, and recommends buying the stock. Analyst Cathy Seifert from CFRA Research, on the other hand, expressed skepticism about the prospects for the next twelve months in view of economic challenges, but also spoke of healthy quarterly results.