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Buffett's Berkshire: Investments Faced Loss, Operating Earnings Rose

Berkshire Hathaway, the conglomerate run by Warren Buffett, suffered investment losses due to the market volatility.

Warren Buffett's Berkshire Hathaway  (BRK.A)  suffered investment losses during the market volatility, but the conglomerate's operating profits skyrocketed.

A multitude of businesses such as energy, insurance and utilities owned by Berkshire Hathaway make up its operating earnings, which rose to $9.283 billion during the second quarter of 2022, an increase of 38.8% from a year ago.

Market Turmoil Caused Investment Losses

The businesses were not immune to the turmoil in the market, declining by $53 billion during the quarter, Berkshire reported August 6. 

But Buffett, the well-known and highly regarded investor, cautioned against focusing on the short-term fluctuations on its investments.

“The amount of investment gains/losses in any given quarter is usually meaningless and delivers figures for net earnings per share that can be extremely misleading to investors who have little or no knowledge of accounting rules,” Berkshire said in a statement.

Berkshire Operating Earnings Skyrocketed

The headline number is that Berkshire Hathaway suffered a loss in the second quarter and in the first six months of 2022 compared to the first six months of 2021, Robert Johnson, a professor at the Heider College of Business at Creighton University, told TheStreet. 

Berkshire's investors should be focused on that operating earnings were up 38.8% in the second quarter compared to the second quarter 2021, he said. 

Investors should also note that the operating earnings were up 19.1% in the first six months of 2022 compared to the first six months of 2021. 

The net earnings were down because of investment losses and the mark to market accounting requirement, Johnson said.

Buffett's investment philosophy has always been to maintain a portfolio consisting of investments in a range of industries.

"This operating earnings bodes well for the economy as Berkshire’s diversified nature is a proxy for the overall economy," he said. "Those pundits espousing the opinion that we are not in a recession are heartened by Berkshire’s results."

Berkshire's earnings also revealed that the company scaled back share repurchases over the same time last year to $1 billion, resulting in a six-month total to $4.2 billion.  During the first quarter, the pace was higher and the company bought back $3.2 billion of its own stock.

"This is not surprising given the firm’s recent purchases of Occidental Petroleum," Johnson said.

The conglomerate's cash level rose to $105.4 billion at the end of June,e ven though it added bought more shares in Occidental  (OXY)

Berkshire's Top Holdings

Berkshire Hathaway owns a 18.7% stake in Occidental. The company added to its stake in July. Shares of Occidental fell by only 0.17% during the past month. 

The energy sector took a beating recently as oil prices fell below $90 a barrel as the commodity market has priced in recession fears and a slowdown in the economy growing in the second half of the year. 

Berkshire also owns a stake in oil producer Chevron (CVX) , which is the fourth largest holding owned by the conglomerate and only exceeded by Apple (AAPL) , Bank of America (BACXL) ,  and Coca-Cola (KO) .

The conglomerate's stock has outperformed the S&P 500, which is down 2.5% compared to the benchmark that has suffered a 13% loss year to date.

The conglomerate’s Class A stock dipped by over 22% during the second quarter and has fallen by almost 20% from its all-time high on March 28.