Warren Buffett has a problem or two – too much cash, lower taxes, too few prospects for a home for that money, a fully valued stockmarket, booming US economy and all this complicated by a potentially misleading change in US accounting policy.
The continuing lack of investment prospects (outside of shares) has seen Warren Buffett’s Berkshire Hathaway repurchase nearly $US1 billion of its shares in the three months to September after signaling its intention to do so in July with a change in its policy.
Berkshire last repurchased shares in the fourth quarter of 2012, when it spent more than $US1 billion to buy a large block of stock from a long time shareholder close to Buffett.
In 2011 it spent $US67 million purchasing its own shares.
The company’s third-quarter report, released on Saturday, showed that a total of $US928 million in shares was repurchased, a sign the Buffett company can’t find assets and new companies to add to the huge Berkshire portfolio outside the shareholdings – which were valued at $US201 billion at September 30, up from $US162 billion at the end of 2017.
The quarterly report showed why Berkshire’s problem of both finding a home for the cash won’t go away anytime soon. At September 30 the company’s float or insurance premiums collected before claims are paid totaled $118 billion. up from $US111 billion at the end of June and $US108 billion at the end of March this year.
Of that figure, the company had $US103.6 billion in cash, short-term Treasuries and other similar investments.
The purchases in the third quarter included 225 shares of class A stock and more than 4 million class B shares.
Thanks to the Trump tax cuts, earnings from operations soared in the third quarter, nearly doubling to $US6.9 billion, from $US3.44 billion a year ago.
But Berkshire’s total net profit surged fourfold from a year earlier to $US18.54 billion in the three months to September. Analysts said that is the largest ever quarterly profit reported by a US company because of the rule changes around valuations of share investments.
Berkshire said nearly $US12 billion that $US18.54 billion figure came from the rise in the value of its investment portfolio, which includes stakes in companies such as Apple, Coca-Cola, General Motors, American Express, Bank of America and Wells Fargo.
Changes in US accounting rules earlier this year now require Berkshire to include the fluctuations in its multibillion-dollar stock portfolio alongside its quarterly results, a decision that the company and Buffett have vehemently criticized as being misleading, especially to small investors.
The rules mean that if October’s slide is maintained into the rest of the 4th quarter, Berkshire could be revealing a big fall in net profit from the drop in the value of its share portfolio.
Berkshire said it suffered catastrophic losses of $US372 million in the third quarter relating to Hurricane Florence, and typhoon Jebi, the strongest typhoon to strike Japan in more than two decades.
It warned hurricane Michael that hit the southeastern US in October would cause losses between $US350 million to $US550 million in the fourth quarter.
Despite these losses, the insurance division swung to a net underwriting profit in the period of $US441 million, after suffering more than $US1.4 billion in losses in the same quarter of 2017 from three hurricanes and the Mexico City earthquake.
Berkshire’s Class A shares are up 3.6% so far this year and closed at $US308,411 on Friday. The rise in Berkshire shares has outperformed the smaller 1.9% rise in the value of the S&P 500, the US stock market benchmark, this year. The index is also the benchmark that Buffett uses to compare the company’s annual share price performance.
