Legendary investor Warren Buffett’s Berkshire Hathaway posted a $12.8 billion third quarter loss as the conglomerate’s stock holdings underperformed the broader market. But the Oracle of Omaha continues sitting on a mountain of cash, with Berkshire holding over $157 billion available to deploy.
Berkshire’s Q3 loss was far larger than the $2.7 billion deficit in the same 2021 period. However, operating earnings from Berkshire’s core insurance, utility and industrial businesses surged 41% to $7.8 billion, showcasing the resilient cash generation of Buffett’s sprawling conglomerate.
The divergence highlights Buffett’s long-term perspective and willingness to endure short-term pain. With markets volatile and valuations uncertain, America’s most famous investor is keeping his powder dry for better bargains ahead.
Buffett Shrugs Off Paper Losses To Focus on Berkshire’s Earnings Power
The biggest drag on Berkshire’s Q3 results was its almost $350 billion stock portfolio, which fell in value as the broader market declined. Top holding Apple plunged over 20% last quarter, slicing tens of billions from Berkshire’s net worth.
But Buffett routinely downplays these paper losses, urging investors to judge Berkshire not by fickle capital gains but rather by its operating earnings.
“Buffett always stresses that market volatility shouldn’t concern long-term shareholders,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business. “The key metric is Berkshire’s intrinsic value, which comes from its diversified operating businesses.”
[Berkshire’s operating units](https://www.berkshirehathaway.com/subs/sublinks.html), ranging from insurers like Geico to industrial firms like Precision Castparts, generated $7.8 billion in Q3 earnings, up 41% year-over-year. This highlights the company’s fundamental financial strength through ups and downs in the stock market.
Insurance Underwriting Fuels Earnings Growth
A huge factor in Berkshire’s Q3 earnings jump was a turnaround in underwriting profits at its massive insurance division, which includes auto insurer Geico, reinsurer Gen Re, and several other premium brands.
Geico posted an underwriting profit of $204 million in Q3 after 6 straight quarters of deficits, thanks to higher premiums and lower accident claims. Gen Re and other units also boosted their underwriting gains compared to last year’s major hurricane losses.
“The insurance operations are the core earnings engine of Berkshire, so improved underwriting profits are a great sign,” explained Cathy Seifert, an analyst at CFRA Research. “A ‘quiet’ hurricane season also benefited reported results.”
Buffett grew Berkshire over decades by using insurance premiums to invest in stocks and acquire companies. Its insurance float now tops $150 billion, providing a low-cost source of financing for the parent company.
Berkshire Still Sitting on Massive $157 Billion Cash Pile
Despite turbulent markets, Buffett was relatively quiet on the acquisition front in Q3, making only a few small bolt-on purchases. And Berkshire’s frugality extended to stock buying as well, with just $5.3 billion in net equity purchases last quarter.
As a result, Berkshire’s cash hoard remains enormous at over $157 billion. Buffett is biding his time waiting for better bargains rather than overpaying for assets amid ongoing economic uncertainty.
“With volatility high and the economic outlook cloudy, Buffett is keeping his powder dry for now,” said Bill Smead of Smead Capital Management. “But his track record proves when the time is right, he will put tens of billions of cash to work in a flash.”
Buffett did add modestly to Berkshire’s own stock last quarter, repurchasing $1.1 billion in shares as part of an ongoing buyback program. The repurchases provide support for Berkshire’s share price when broader markets falter.
The Bottom Line
With his timeless focus on long-term company fundamentals over short-term stock gyrations, Buffett remains unruffled by Berkshire’s quarterly investment losses. The Oracle is keeping his giant cash reserve ready for deployment when bargains emerge.
As Berkshire’s operating businesses continue generating ample cash flow, Buffett can afford to wait patiently for attractive opportunities. This discipline has served him well over his legendary career, cementing his status as the greatest capital allocator of his generation.
While some criticize Buffett’s cautious stance with markets in flux, his $157 billion war chest puts Berkshire in a prime position to seize opportunities when asset prices reset at more appealing levels. Whenever Mr. Market serves up fat pitches again, savvy Buffett will be ready to swing for the fences.