Investment Insights - Berkshire Hathaway
I wanted to share an update on Berkshire Hathaway, because over the last six months it has been somewhat out of favour.
When enthusiasm in markets leans strongly toward certain areas, other strong businesses can drift out of the spotlight. That is what has happened here.
It is worth recalling how differently Berkshire behaved earlier this year. In April, when the wider market pulled back by around 16 percent, Berkshire rose by approximately 4 percent. This ability to hold steady, and sometimes rise, during periods of nervousness is one of the reasons it is part of your portfolio. It is often at its most valuable when markets become uncertain.
Right now investor attention is focused on large technology companies. Many of these businesses are producing real earnings growth and innovation, so the market’s interest in them holds some justification but there will prove to be pockets of frothiness also. When attention becomes concentrated in one area, other high quality companies can appear quiet for a time. This does not mean anything is wrong. It simply reflects the short-term voting nature of markets.
That is why it is helpful to look at the fundamentals. Berkshire’s most recent results announced last Friday were strong.
Profit increased by 17 percent compared with the same period last year.
The company holds more than $350 billion dollars in cash and short-term bills. To put this into context Berkshire Hathaway holds more cash than any company in the world, and there are only 30 companies in the world with a larger market value.
Insurance operations performed well, particularly GEICO, which posted meaningful underwriting profits.
Manufacturing, service and retail businesses showed steady growth.
BNSF Railway continued to improve operations and pricing discipline.
The only area under pressure was the energy division due to previously known wildfire-related costs. There was no new negative development.
The most important strategic feature remains the large cash position. This provides flexibility. If markets correct or valuations fall in certain areas, Berkshire has the ability to buy high quality assets at more attractive prices or repurchase its own shares when they represent value. It can act from a position of strength rather than reacting out of necessity. This patience has served it well historically.
Berkshire does not need to be the best performer in every phase of the market to earn its place. It is held to reduce downside risk, to provide resilience, and to compound steadily over time. For most clients, an allocation of roughly 10% to 35% of their portfolio remains sensible.
Overall, the fundamentals are strong, the business remains disciplined and the cash position provides optionality as well as emotional reassurance for investors. Berkshire continues to play the role it is meant to play.
I will show you a six month chart and a 30 year chart of Berkshire’s share price performance. You choose which chart is important!!
