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Buffett Bought Up His Own Stock While Selling Others Amid Rally

(Bloomberg) — Shares of Berkshire Hathaway Inc. were left out of the stock market rally in the second quarter. Warren Buffett clearly thought the disconnect wasn’t warranted.

The famed investor spent a record $5.1 billion buying back Berkshire’s own stock in the second quarter, more than double the amount he’d ever purchased before. That came as he unloaded almost $13 billion of other companies’ shares, including airline stocks and some financials, in what was Buffett’s biggest selling quarter in more than a decade.

Buffett has shown signs of buying appetite in recent weeks, but the second-quarter results show those are a new phenomenon as the Covid-19 pandemic has slammed the economy but failed to put a permanent dent in stock-market valuations. Buffett’s been building up cash this year even as other investors have sought to seize on opportunities amid the turmoil, and the pain Berkshire’s own businesses are feeling may inform his thinking.

“Our operating business groups are preparing for reduced cash flows from reduced revenues and economic activity as a result of Covid-19,” Berkshire said Saturday in a regulatory filing. “We currently believe our liquidity and capital strength, which is extremely strong, to be more than adequate.”

Buffett’s cash pile surged to a record $146.6 billion at the end of June, in part from dumping all of his airline shares in April. He’s been more active lately, striking a deal for natural-gas assets in July and snapping up at least $2 billion of Bank of America Corp. stock in recent weeks through Aug. 4.

Berkshire’s Class A shares, which fell in line with the S&P 500 in the first three months of the year as the pandemic spread in the U.S., fell another 1.7% last quarter while the broader index rallied 20%. Buffett said in early May that repurchases weren’t more compelling than at previous times, but the buybacks in the quarter suggest his thinking shifted.

The company’s stock has rallied in July and August, but still is underperforming in 2020. Berkshire Class A shares were down 7.4% for the year through Friday’s close, compared with the 3.7% gain in the S&P 500.

Berkshire’s operating profit slumped 10% in the second quarter to $5.5 billion. That was driven by a 42% drop in earnings from the conglomerate’s manufacturing, service and retailing businesses.

The company also took $10 billion of impairment charges related to its Precision Castparts unit. Berkshire bought Precision Castparts in 2016 in a transaction valued at $37.2 billion, making it one of Buffett’s biggest deals. Now the maker of jet-engine blades and aircraft structural components is bracing for lean times as Boeing Co. and Airbus SE cut jetliner production and less air travel reduces the need for replacement parts.

That’s forced the aerospace-parts maker to undergo “aggressive restructuring,” with the company cutting its workforce by about 10,000 employees during the first half of 2020.

“We believe the effects of the pandemic on commercial airlines and aircraft manufacturers continues to be particularly severe,” Berkshire said in the filing. “In our judgment, the timing and extent of the recovery in the commercial airline and aerospace industries may be dependent on the development and wide-scale distribution of medicines or vaccines that effectively treat the virus.”

Other key takeaways from the results:

Unrealized gains and losses in Berkshire’s massive stock portfolio count toward the bottom line. So the S&P 500’s rally in the second quarter pushed net income to $26.3 billion.Insurance underwriting profit more than doubled to $806 million in the period. That was helped by gains at auto insurer Geico as fewer accidents benefited the business. Berkshire warned that Geico might be hurt in the next three quarters by a program that’s giving drivers a credit on their premiums.Berkshire’s press release is here.

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