Warren Buffett just helped drive a US$36 billion profit. Here’s how

The investment guru’s company Berkshire Hathaway reported its second-quarter results over the weekend.

| More on:
A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Warren Buffett has done it again.

What’s that?

He’s just helped Berkshire Hathaway – the company he’s spearheaded since 1965 – deliver a whopping US$36 billion quarterly profit.

Berkshire reported its second-quarter results over the weekend.

Here’s how the company managed to outperform.

How did Warren Buffett’s Berkshire send profits soaring?

Berkshire’s second-quarter operating profits came in at just over US$10 billion, marking a new quarterly operating profit record.

Share price gains from Berkshire’s stock holdings helped push the company’s overall profit to almost US$36 billion.

The company’s insurance underwriting earnings were a particularly bright point, up 74% year on year to US$1.25 billion.

Meanwhile, the company’s cash holdings have increased to a near-record high of just under US$150 billion.

Why the big increase in cash holdings?

The Oracle of Omaha is well-known for his focus on value investing. So, I reckon it has to do with this Warren Buffett investing nugget, “Never overpay for anything.”

A sharp increase in interest rates over the past year has offered a big boost in the profits brought in from Berkshire’s cash holdings.

On the other hand, Buffett looks to be hesitant to increase Berkshire’s stock holdings at current valuations. Q2 saw the company be a net seller of stocks to the tune of US$8 billion.

“The story here is interest rates, and valuations of stocks,” Edward Jones analyst Jim Shanahan said (quoted by Reuters).

According to Shanahan:

The earnings impact of higher interest rates on investment income is offsetting the economic softness caused by those same rates. And it’s clear there aren’t a lot of attractive investment opportunities out there.

BI analysts Matthew Palazola and Eric Bedell added (quoted by Bloomberg), “CEO Warren Buffett said operating companies’ earnings could decline this year but a significant rise in interest income would be an offset.”

According to Bedell and Palazola:

Berkshire Hathaway’s diverse businesses contribute to long-term earnings power. A slowing economy and inflation are risks but the company largely has shrugged them off to date.

While Warren Buffett opted to have Berkshire sell more stocks than it bought over the quarter, the profits delivered by the stocks the company does own tells me he’s holding onto the winners.

As Buffett famously said, “The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders.”

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on How to invest

A young man wearing glasses writes down his stock picks in his living room.
How to invest

‘Upside for shareholders can be supernormal’: Global fundie’s guide to successful stock picking

This expert has some valuable tips for all ASX investors.

Read more »

A businesswoman in a suit and holding a briefcase marches higher as she steps from one stack of coins to the next.
How to invest

Building a $1 million portfolio with ASX shares and the magic of compound interest

Investors can supercharge their long-term gains by tapping into the magic of compound interest.

Read more »

A trendy older hipster guy with a long white beard and headphones pulls rockstar hand sign with his hands.
How to invest

Here’s what happens when you invest $50 a month in ASX shares for 40 years

From little things, big things grow.

Read more »

Concept image of man holding up a falling arrow with a shield.
How to invest

Why I’m getting ready for a stock market crash

Market crashes are opportunities in disguise.

Read more »

illustration of the words '1 million' in gold with confetti surrounding it
How to invest

How long would it take to build a $1 million ASX share portfolio investing $500 a month?

These are the steps to take to build a million-dollar portfolio.

Read more »

An older female ASX investor holds a gangster-style fist pump pose showing off gold rings with dollar signs on them.
How to invest

How popular are ASX shares among the rich and wealthy?

And how does your portfolio balance compare to the richest Australians'?

Read more »

Three miners stand together at a mine site studying documents with equipment in the background
How to invest

How to pick the best ASX lithium shares now ‘those frenzied days are over’

Irrational exuberance is now in short supply as lithium prices come back to Earth. It's time to take a measured…

Read more »

A businessman hugs his computer and smiles.
How to invest

64% of surveyed Aussie investors embrace this ‘Warren Buffett method’. Do you?

Warren Buffett likely counts as the investor most of us would like to emulate.

Read more »