Summary
- Berkshire's equity book rose 21% in Q2 thanks to Apple, but still remains down 14% from its Q4 high.
- Berkshire itself has massively under performed, down 2% for the quarter while the S&P500 has rallied nearly 20%.
- Berkshire needs to re-evaluate its investment performance and realize its massive size makes it very hard to generate alpha.
- Investors should be concerned if Q2 does not show significant share repurchases with Berkshire's stock approaching book value.
Berkshire Hathaway (BRK.A) (BRK.B) had an eventful second quarter that included selling off their airline holdings and holding their first virtual annual meeting. Berkshire's equity book kept pace with the S&P500 this quarter, although Berkshire itself dropped 2% while the broader market advanced nearly 20%. To me, the biggest story was that there was no story at all; despite $130+ billion in cash and a 30% market drop, Berkshire purchased almost nothing.
Q2 Holdings Update
The value of Berkshire's investments in equity securities excluding Kraft Heinz (NASDAQ:KHC) rose 21% to $204.1 Billion from $169.3 billion, almost entirely on strength from Apple (AAPL). This is still down from the $237.7 billion at the end of Q4. Financials Wells Fargo (WFC), Bank of America (BAC) and American Express (AXP) remain weak and have not taken part in the recovery.
From the ~$34.8 billion gain, after increasing the liability for future income taxes on the balance sheet as "Income taxes, principally deferred" and subtracting 21%, we see a net book value gain of $27.5 billion for Q2.
The Occidental Petroleum (OXY) preferred shares were indeed written down to $5.5 billion last quarter and the dividend was paid in common shares, rather than cash, at Occidental's option. It will be interesting to see whether Berkshire holds these shares or sells them (I hope they sell them.)
