Summary
- A review of Berkshire Hathaway’s latest filing shows that the company was not a big buyer of equities as they fell last quarter.
- Surprisingly, the company stopped buying its own stock before it dropped materially.
- The company’s stock still offers good value.
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Introduction
“Where’s Warren Buffett?” Some people were asking this earlier during the current crisis. He has been unusually silent unlike during the Financial Crisis when he came out saying he was buying stocks. People have wondered and speculated about whether he was buying stocks during the decline, and even more importantly, whether he was directing his company to buy back its own stock. With the release of Berkshire Hathaway’s (NYSE:BRK.A) (BRK.B) first quarter results for 2020, we have some answers.
1Q2020 results
First, a note on the first quarter results. The headline number was a loss of $49.7 billion, mainly due to a mark-to-market pre-tax loss of $70.2 billion on investment and derivative contracts. Operational results were actually quite good, with operating earnings of $5.9 billion vs. $5.6 billion in the prior year. This amounted to $2.41 per B share.
Equity activity
I zeroed in on the cash flow statement in the company’s 10-Q filing to see the extent to which the company was buying equities last quarter. The answer for stock bulls is disappointing. The company bought $4 billion and sold $2.2 billion for a net purchase of only $1.8 billion. Its equity portfolio shrank from $248 billion at the end of the year to $181 billion due to market losses. The company holds $133 billion in cash and short-term investments in Treasury bills, so it clearly had the firepower to buy a lot more.
Also disappointing was the company’s spending on acquiring its own stock of $1.7 billion, not much more than the $1.6 billion spent in the first quarter of 2019. The details (on page 42 of the 10-Q) are revealing. The company bought stock in January at an average price of $226, in the last week of February at an average price of $214, and in the first 10 days of March at an average price of $214. There were no purchases after March 10. It was thus not a buyer when the stock cratered into the $160s. It looks like Buffett froze like everyone else and decided not to do anything while assessing the situation. This may come as a surprise to many.
In response to a question at the annual meeting, Buffett also said that he had entirely sold the company’s airline positions, marking an about-face from adding to its Delta (DAL) position during the early days of the crisis.
