Article on Berkshire Hathaway's record operating profit and how rising rates boosted Buffett's returns: Nitu Gupta

Article on Berkshire Hathaway's record operating profit and how rising rates boosted Buffett's returns:

Berkshire Hathaway Posts Record Operating Profit

Berkshire Hathaway, the conglomerate led by billionaire Warren Buffett, posted its highest ever quarterly operating profit in the second quarter of 2023. The company's operating profit rose 7% to $10.04 billion, or about $6,938 per Class A share, from $9.42 billion a year earlier.

The increase in operating profit was driven by a number of factors, including rising interest rates, better results at the Geico car insurer, and strong performance from Berkshire's other insurance businesses. Interest and other investment income grew sixfold in the quarter, to $2.1 billion, as the Federal Reserve raised interest rates in an effort to combat inflation.

Geico's results improved in the quarter, as the company benefited from lower claims costs and higher premiums. Berkshire's other insurance businesses also performed well, with net income from the railroad, utilities, and manufacturing businesses all rising.

In addition to the increase in operating profit, Berkshire also reported a net income of $35.91 billion, or $24,775 per Class A share, in the second quarter. This was up from a net loss of $43.62 billion a year earlier, when the company took a $17.5 billion charge related to the decline in the value of its investments in Wells Fargo and Goldman Sachs.

The strong results in the second quarter helped Berkshire's cash pile grow to $147.4 billion as of June 30, from $130.6 billion three months earlier. The company said it plans to continue to repurchase shares in the third quarter, but it did not specify how much it would spend.

Rising Rates Lift Buffett's Returns

The increase in interest rates was a major factor in Berkshire's strong performance in the second quarter. The company's insurance businesses generate significant income from premiums, and the higher interest rates helped to boost the yields on those premiums.

Buffett has long been a proponent of investing in businesses that generate cash flow, and the insurance businesses are a prime example of this. These businesses generate steady cash flow, which allows Berkshire to invest in other businesses and to repurchase shares.

The increase in interest rates is also likely to benefit Berkshire's other investments. The company has a large stake in Apple, and the higher interest rates are likely to boost the company's earnings. Berkshire also has a large stake in Bank of America, and the higher interest rates are likely to boost the company's profits.

Overall, the strong results in the second quarter were a testament to Buffett's investment skills. The company's insurance businesses continued to perform well, and the increase in interest rates helped to boost Berkshire's returns.

Looking Ahead

Berkshire is well-positioned for the future. The company has a strong balance sheet, a large cash pile, and a portfolio of high-quality businesses. Buffett has said that he is looking for opportunities to invest in businesses that are "durable" and that have "moats."

The economic outlook is uncertain, but Berkshire is well-positioned to weather any storms. The company has a long history of success, and Buffett is one of the most respected investors in the world.

Conclusion

Berkshire Hathaway's record operating profit in the second quarter is a testament to Buffett's investment skills. The company is well-positioned for the future, and it is likely to continue to generate strong returns for its shareholders.