Buffett’s Billion Dollar Losses

Which Stocks Did Buffett Lose Money On? Warren Buffett may be the most famous and successful investor in American history, but he is no stranger to on-paper losses.

 

Due to Buffett’s love of buying and holding for the long-term, it’s relatively common for his portfolio to post heavy losses during economic downturns.

 

In Q2, Berkshire Hathaway reported total losses of nearly $44 billion. Here are the stocks that have driven Berkshire’s bottom line down the most.

 

The majority of Berkshire Hathaway’s paper losses in the most recent quarter are attributable to its massive stake in Apple.

 

After increasing its existing stake in Apple in Q1, Berkshire began taking considerable losses as the stock dropped throughout Q2. Overall, Berkshire lost about $30 billion on Apple in the second quarter.

With that said, it’s important to keep in mind that these losses only reflect quarter-to-quarter price changes. Because most of Berkshire Hathaway’s Apple position was bought between 2016 and 2018, its cost basis for the stock is only about $34 per share.

 

As a result, Berkshire’s total unrealized profits on Apple are still about $90 billion dollars.

 

Another large loser for Berkshire in Q2 was Bank of America.

 

Unsurprisingly, Bank of America represents the second-largest holding for Buffett’s company. Berkshire owns over a billion shares in the bank, giving it control of over 12 percent of the company.

Over Q2, these shares lost nearly a quarter of their total value. Like Apple, though, these shares still represent a long-term profit for Buffett’s investment company.

 

The average price for Berkshire’s Bank of America’s position is about $24 per share, and the stock currently trades at just over $35. Even with Bank of America’s stock currently depressed, Buffett has made over 45 percent since buying his shares.

 

A final massive Q2 loss came from American Express. Berkshire owns about 20 percent of the credit card company, causing it to take heavy paper losses when the stock plunged more than 25 percent over the second quarter.

 

Because the company has held American Express over the long run, though, Berkshire is up nearly 200 percent on its initial cost for this stock.

As noted above, the $44 billion Berkshire reported in losses only represents a quarter-to-quarter paper loss. Unless Buffett makes the unlikely decision to sell these long-term stakes, there’s little chance that the losses will be permanent.

 

Analyst targets suggest that each of these stocks will rebound to at least some extent in the coming 12 months. Apple is expected to rise 8.7 percent, Bank of America is expected to rise by 19.4 percent, and American Express is expected to rise by 9.4 percent.

 

While none of these increases are enough to overtake Q2’s losses, they all show the stocks are on their way to recovery.

 

It’s also worth remembering that each of these stocks pays a dividend that helps to offset some of the equity losses.

 

Apple’s dividend is quite small at a yield of just 0.54 percent. Bank of America and American Express, however, yield much larger payouts at 2.39 percent and 1.28 percent, respectively.

 

Because stock prices fluctuate, Berkshire’s quarterly bottom line isn’t the best way to evaluate the company. In a quarter when stock prices drop, Berkshire appears to post massive losses. Berkshire’s wholly-owned businesses provide a better view into its actual performance, as these businesses don’t move up and down with the whims of the stock market.

 

In Q2, Berkshire’s subsidiaries reported a total profit of about $11 billion. This shows that the company’s widespread business lines are still performing well and generating ample cash that can be reinvested elsewhere.

Although the losses posted in Q2 will likely have little to no effect on Berkshire’s long-term success, Buffett’s ongoing buying activity certainly will.

 

Unsurprisingly, the well-known value investor added to his Apple stake in Q2, buying 5 million additional shares. With the stock sold off and the underlying business still fundamentally sound, it’s likely that Buffett perceives Apple to be undervalued at the moment.

 

Energy stocks made up a significant portion of Buffett’s Q2 acquisitions, showing his ongoing belief that energy prices will remain elevated for the foreseeable future. Chevron and Occidental Petroleum, two long-time Buffett favorites, saw their Berkshire stakes rise during the quarter.

A much smaller company, Markel, has also been on Buffett’s radar this year. After investing more than $600 million into this small insurer in Q1, Buffett bought about $60 million more in Q2.

 

Like Berkshire itself, Markel uses cash from its insurance business to purchase other businesses and public stocks. As a result, it has occasionally been compared to a miniature Berkshire Hathaway.

 

With all of this said, Buffett significantly reduced his buying activity in Q2 as compared to Q1. In the first quarter, Berkshire Hathaway deployed over $40 billion of net cash into stocks, taking advantage of a tumbling market to search for bargains. That activity narrowed to only about $3.8 billion in Q2 after accounting for sales.

 

Even after its Q1 spending spree, Berkshire Hathaway still has $101 billion in cash and equivalents on its books. This gives the company ample room to take advantage of opportunities as they arise.

 

So, while Buffett may be done deploying capital in bulk for now, he clearly retains the option to buy high-quality stocks when he sees them at favorable prices.

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