Warren Buffett - Berkshire Hathaway Returns to Profit
Warren Buffett likes to remind people to "be fearful when others are greedy and be greedy when others are fearful". Back in October he put his money where his mouth is and bought up a pile of preferred shares while others were predicting the end of the Western world and capitalism as we know it. Well so far Warren Buffet has been proved right. We will find out at the end of this week whether he has continued buying shares during the second quarter.Berkshire Hathaway the company of which Warren Buffett is the CEO moved back into profit in the second quarter of this year, as a result of gains on derivatives and the stocks in companies such as Goldman Sachs and GEC that it bought on favorable terms back in October when some people were saying he had finally los the plot.
Berkshire Hathaway reported a $1.5bn loss for the first three months of the year – its first loss since 2001 – in the second quarter however it showed a $3.3bn profit investment gains offset falling earnings.
Last year, Berkshire, reported a $2.9bn profit.
Nerkshire's performance was helped by changes in the terms of some of the derivatives contracts relating to equity index performance of in the US and abroad.
Berkshire will have to pay investors if the indices are below a pre-determined “strike price” at the end of these contracts.
Over the quarter, Warren Buffett, shortened the maturity for some of these contracts and lowered the strike price.
This led to a reduction in accounting losses on the contracts of around $1.1bn.
Overall, Berkshire Hathaway reported a $1.5bn gain on its derivative portfolio, more than twice the levels in Q2 of 2008.
Berkshire said its spending spree in the middle of the financial crisis was very beneficial, as several distressed companies agreed to sell shares to raise cash and also benefit from the credibility of being able to count the “Oracle of Omaha” among their shareholders.
Berkshire revealed that its $17.5bn investment in preferred shares in Goldman, Dow Chemical, GE, Swiss Re and Wrigley would provide $2bn of dividends and interest payments.
Warren Buffett used his influence and large amounts of available cash to persuade companies to let him buy preferred shares which pay high annual dividends.
This extra profit will offset cuts in dividends by some of the Warren Buffett's banks, such as US Bancorp and Wells Fargo, and highlights that Warren Buffett didn't get to be a billionaire by being nice, he simply took advantage of the recession and the financial crisis to buy at attractive prices.
Berkshire Hathway was not totally immune from the global financial meltdown, it in fact reported a 22% year-on-year fall in operating earnings to $1.8bn.
Warren Buffett has also started a new venture a cartoon series to teach kids how to manage their finances properly - the Secret Millionaire's Club
For a short biography of Warren Buffett see - Warren Buffett Biography
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