Warren Buffett’s Berkshire Hathaway is compensating for its weak second quarter by increasing its holdings in Apple Inc. After 3.5 years since their last major acquisition, the Omaha-based conglomerate has built a $50.5 billion stake in the iPhone creator. The total makes Apple the largest holding in Berkshire. In May, Warren Buffett said that he was "pleased” with Apple’s first-quarter reports. He’s likely pleased with second-quarter reports as well.
Tim Cook, Apple’s CEO, recently said,
“This was our biggest June quarter ever — driven by all-time record revenue from Services, accelerating growth from Wearables, strong performance from iPad and Mac and significant improvement in iPhone trends."
Berkshire is Bleeding from Insurance Sector
Despite the optimism at Apple, Berkshire’s operating profits fell 11%, from $6.89 billion to $6.14 billion. The holding company took a hit on their quarterly operating profits due, in large part, to insurance underwriting shortcomings.
— Yahoo Finance (@YahooFinance) August 3, 2019
Geico, Berkshire’s auto insurer, suffered a larger number of accidents than usual. Geico's pre-tax underwriting gain fell 42% due to a higher ratio of loss claims to premiums. In total, insurance underwriting profit fell 63%, to $353 million from $943 million.
Coincidentally, distracted-driving fatalities have been reaching all-time highs. After averaging between 3,000 - 3,500 fatalities per year from 2010-2017, distracted-driving deaths surged to an all-time high of 4,637 in 2018.
Taking Hits on Multiple Fronts
Insurance isn’t the only thing hurting the billion-dollar conglomerate. Earnings in Berkshire’s manufacturing sector were stuck in the mud. The company’s Precision Castparts unit took hits from U.S. tariffs which slowed the sale of gas turbine and pipe products, as well as Berkshire’s service and retail businesses.
On top of that, the entire U.S. economy has slowed. The annualized growth rate fell to 2.1% in the second quarter from 3.1% in the first. Declining exports, manufacturing, and business investment are likely a result of the rising tensions between the U.S. and China. Business investment slowed for the first time since 2016, dropping from 4.4% in the first quarter to 0.6% in the second.
— The Hill (@thehill) July 26, 2019
In May, Warren Buffett said a trade war between the U.S. and China would be “bad for the whole world,” while a full-scale trade war would be “bad for everything Berkshire owns.”
Despite their recent shortcomings, don’t assume Berkshire is in trouble. The company said their quarterly net income rose 17%. Over the past year, each Class A share rose from $7,301, or $12.01 billion total, to $8,608, or $14.07 billion total.
Crypto Could Be the Answer for Warren Buffett
If Buffett wanted to give his bottom line a boost, he could look into changing his stance on cryptocurrency. The billionaire reportedly has lost $209 million by investing in Amazon instead of bitcoin, according to a report by ccn.com.
Warren Buffett on bitcoin: It's an asset that creates nothing; cryptocurrencies "just sit there" and "if you don't understand it, you get much more excited" pic.twitter.com/XtvG5DzYuN
— CNBC (@CNBC) May 7, 2018
Warren Buffett was set to meet for lunch with Justin Sun, CEO of the cryptocurrency Tron. Sun had planned to gather other cryptocurrency figureheads to convince Buffett that blockchain and crypto was a viable asset. The meeting was postponed due to Sun’s health concerns.