Greg Abel finally puts Buffett’s cash pile to work
Berkshire Hathaway chief ends more than three-year selling streak as he ploughs a net $20bn into stocks
Berkshire Hathaway chief executive Greg Abel ploughed a net $19.8bn into the stock market in the second quarter, ending a more than three-year selling streak by his predecessor Warren Buffett.
The investments, which include a $10bn deal to buy Alphabet common stock and $4.5bn spent on Berkshire’s own shares in the quarter, signal Abel’s appetite to leave his mark on the Omaha-based insurer by putting some of its mammoth $365bn cash pile to work.
Buffett’s decision to sit on the sidelines and prune the company’s $324bn listed stock portfolio over the past three years was seen as a sign that the famed value investor thought equities were overvalued.
That makes Abel’s decision to jump back into the market all the more stark, particularly as US equities sit at record highs.
Over the past few decades, Buffett’s investment decisions have been closely parsed for signs of where he believes the market might be headed. The record cash pile he had accumulated unnerved some investors, who suspected he was waiting for a downturn that would offer a better opportunity.
Berkshire, which owns the Geico and National Indemnity insurers as well as the maker of Duracell batteries and Fruit of the Loom underwear, reported its cash levels dropped by $15bn in the quarter.
Abel replaced Buffett at the start of the year after one of the longest and most influential tenures by an executive in the American corporate world. Buffett had run Berkshire for six decades, taking over the then-struggling textile maker in 1965.
Abel, who started his career as an accountant before rising through Berkshire’s energy business, has begun to forge his own legacy at the business. Days after anchoring an $85bn capital raise by Alphabet, Abel announced Berkshire had agreed to buy home builder Taylor Morrison for an enterprise value of $8.5bn.
The two deals were among the largest transactions Berkshire has completed in recent years and showed Abel was, as he said at the company’s annual meeting in May, willing to act “decisively” and make “significant” investments.
Berkshire spent $23bn buying publicly listed stocks in the second quarter, including the deal with Alphabet, making the parent of Google one of its top five holdings.
Disclosures on Saturday signalled Berkshire had invested $21bn into “commercial, industrial and other” listed stocks in the three months to the end of June, a category that includes Alphabet.
Investors will get a clearer look at the changes to Berkshire’s stock portfolio this month when it reports its quarterly holdings to US securities regulators.
The company sold $3.7bn worth of stocks during the quarter, the smallest amount since 2022.
Gabelli Funds portfolio manager Macrae Sykes, who holds Berkshire stock, said the share repurchases illustrated that the “best corporate capital allocators see current value” in the company’s stock.
Net income more than doubled from last year to $25.7bn, as the value of its stock positions swelled. US accounting standards require Berkshire to include the swings in the value of its stock portfolio as part of net income every quarter, which the company has said “can be extremely misleading”.
Berkshire’s results reflect the persistent strength of the US economy, with strong performance across multiple industries, even as concerns over high oil prices and inflation weigh on consumers’ wallets.
Operating income, Berkshire’s preferred method to gauge the performance of its owned businesses, rose 16 per cent from the previous year to $13bn.
The company’s BNSF railroad generated a 15 per cent jump in revenues, which it attributed to an increase in US imports along the west coast. A shortage of available trucks also pushed freight to the railroad.
Berkshire’s unit that sells electronic parts disclosed booming demand, which comes amid an investment spree to fund the build-out of AI infrastructure. Sales at the division, known as TTI, jumped by more than 26 per cent.
In contrast, the company’s flagship insurance businesses reported a 13 per cent drop in operating earnings to $1.7bn, as Geico had to pay out larger claims to policyholders and boosted its spending on advertising.
The results also reflected recent dealmaking by Ajit Jain, Berkshire’s vice-chair, who clinched an agreement this year to buy a 2.5 per cent stake in Japanese insurer Tokio Marine in exchange for a cut of its business.
Premiums written by Berkshire’s reinsurance business rose 4.1 per cent from the year before on the back of the deal. The company said that without it, the premiums it wrote would have declined.
Berkshire shares have climbed 3 per cent this year, lagging the 14 per cent total return of the benchmark S&P 500 stock index.