The crisis did not spare “the Oracle of Omaha”. The Warren Buffett conglomerate recorded a record net loss of $ 49.7 billion in the first quarter. At the same time last year, it reported net earnings of $ 21.7 billion. This loss wipes out almost all of the gains made on its investments in 2019.
Berkshire Hathaway suffered from market volatility during this period, when a new accounting rule that came into effect in 2018 requires it to report gains and losses on its unrealized investments. The holding company follows the market trend, the S&P 500 having fallen by 20% in the first quarter. Berkshire Hathaway is notably present in some of the most important companies in the index, such as Apple, Bank of America, American Express or Coca-Cola.
A different crisis
Warren Buffett stresses, however, that he prefers to look at operating results to judge the performance of his investments. And its holding company recorded an operating profit (relieved of the results of certain investments) of 5.87 billion dollars over the quarter, slightly up (+ 5.6%) compared to last year. The increase in income linked to investments in insurance made it possible to compensate for losses in energy, services or the railway. Even before the crisis, Berkshire Hathaway had been affected by the difficulties of Kraft-Heinz and had to depreciate its participation in the giant of the food industry.
While Buffett has, in part, earned a reputation for investing in times of crisis by buying companies or making loans, experts point out that the situation could be different this time. The consequences of Covid-19 affected almost all of its investments, despite a widely diversified portfolio. And the companies most affected, for the moment, do not meet the investment criteria that Warren Buffett has set for himself. Or it is already present in their capital, like certain oil tankers or airlines (Delta, American Airlines, United…)
Virtual meeting
Berkshire Hathaway nevertheless has an unequaled strike force. At the end of the first quarter, $ 137.3 billion in cash is stored, an amount that has increased by another nine billion since the end of the previous quarter. Some of its shareholders would like the conglomerate to be more aggressive in its share buyback program – in the first quarter, it spent $ 1.7 billion.
The coronavirus also forced Warren Buffett to cancel his annual high mass, scheduled for this weekend in Omaha. Traditionally, thousands of shareholders flock to the small town of Nebraska to attend his presentation and have the opportunity to ask him a question. This year the meeting was held online. Warren Buffett spoke about his confidence in the American model. “We have had to face more serious problems and the American miracle, the American magic will prevail once again,” he assured, without however predicting when the economy will recover.
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