Sector: Insurance Kathleen Shanley, CFA September 2 , 20 20
[email protected] Investment Manager ♦ Warren Buffett, now aged 90, has had a celebrated career as a savvy investor who buys and holds investments for many years. But since 2018, when there was an accounting change, Berkshire Hathaway’s (BRK) reported earnings have been volatile, because changes in the fair value of equity securities flow through investment and derivative gains and losses each quarter. During the first quarter ended March 31, 2020, the company reported a net loss of $49.7 billion, reflecting the Covid-related downturn in financial markets. Then, during the second quarter, there was a net gain of $26.2 billion. Second quarter results would have been even stronger, were it not for a $10.6 billion goodwill and intangible asset impairment charge. About $10 billion of the charge covered Precision Castparts Corp. (PCC), which BRK acquired for $37.2 billion in cash and assumed debt in 2016. PCC supplies parts for aircraft makers and the oil and gas industry. Given the sharp recession in these sectors, the company slashed its workforce by about one-third in the first half of 2020. While the write down suggests that BRK overpaid for PCC, the company can easily absorb the mistake, given its large stockpile of cash and diverse portfolio of businesses. We update our investment opinion for Berkshire Hathaway. ♦ While BRK’s investments attract more attention in the press, GEICO insurance has been a strong performer since the outbreak of the pandemic. Auto insurers are benefiting from the Covid- related decline in commuting and traveling.