Berkshire Hathaway (NYSE:BRK.B) shares are up 3.65% over the past month. It’s not a massive outperformance, but the S&P 500 is down 4.8% over the same period. However, £10,000 invested in the Warren Buffett company one month ago would now be worth a little less than £10,000 because of the appreciation of the stock has largely been wiped out by the appreciation of the pound.
And while we’re here. That’s a lesson worth remembering. When investing in non-UK-listed stocks, investors should note the forex forecasts. It’s actually one the reasons I resisted investing in US stocks when the pound hit parity with the dollar over two years ago. Although this did mean I missed out on attractive entry points for Nvidia and Tesla.
Why is Berkshire winning?
One of the main reasons for the 3.65% uplift in Berkshire Hathaway shares is its strong Q4 performance. It saw a 71.3% surge in operating earnings to $14.53bn. This capped off a year in which operating earnings rose 27% to $47.44bn, showcasing the resilience and profitability of its business portfolio.
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The insurance segment was a standout, with pre-tax underwriting earnings more than doubling to $7.81bn, driven by higher premiums and improved underwriting discipline. Insurance investment income jumped 48% to $4.1bn, benefiting from rising interest rates.
Berkshire’s energy business also contributed significantly, with after-tax earnings increasing 60% to $3.73bn. Despite challenges in its railroad operations, where BNSF saw a slight 1.1% decline in earnings due to labour and litigation costs, the overall strength of its core businesses has reassured investors.
Finally, investors were clearly interested by the company’s cash pile which reached a record $334.2bn during the period. This truly huge cash pile provides stability and the potential for strategic investments or share buybacks. This combination of robust earnings, defensive business lines, and financial flexibility has bolstered investor confidence, driving the recent uptick in Berkshire’s share price.
Intriguing cash position
Berkshire Hathaway’s cash position is undoubtedly intriguing investors and in some respects, it represents a port of safety in an increasingly volatile market. This also leads us to ask what will Buffett do with all this cash, which represents around 30% of the holding company’s market cap. In the past, Buffett has used capital wisely in times when the market may be in reverse gear or investor sentiment is low. Amid the current volatility and pullback in certain areas, Berkshire could be very well positioned for takeovers or opportunistic share purchases.
Investing in America
Buffett’s top stock holdings are American stalwarts. And in all honesty, I don’t love the companies Berkshire Hathaway is investing in. In fact, I own none of Berkshire Hathaway’s top 10 holdings. All of the companies come with their own specific risks and in addition, investors may be wary about the volatility being witnessed among US stocks. President Trump’s trade policy coupled with pullbacks in government spending will undoubtedly create more turbulence on the way. Some investors may not like that.
Nonetheless, I recently added Berkshire Hathaway to my portfolio. I believe the huge cash pile will offer some protection against volatile US markets. Moreover, at 12 times earnings — admittedly price-to-earnings isn’t the perfect metric for a holdings company — coupled with unrealised stock gains and huge cash reserves, it’s an attractive proposition for me.
