A rebound in global sharemarkets has allowed Warren Buffett’s investment firm Berkshire Hathaway to get back into the black, posting a $US3.3 billion profit for the June quarter.
The profit compares with a $US2.9 billion profit recorded in the same period in 2008, but is a strong turnaround from the $US1.5 billion loss recorded in the first quarter of this year.
Ironically, it was Buffett’s big bets on derivatives that helped drive the return to profit.
Buffett has previously labelled derivatives as dangerous financial instruments that “have dramatically increased the leverage and risks in our financial system”.
According to Berkshire Hathaway’s announcement, the company’s profits on derivatives jumped from $US689 million to $US2.4 billion, after the company bet heavily that equity indexes around the world would rise as the recovery took hold.
Sure enough, Buffett was spot on – Wall Street’s Dow Jones Industrial Average jumped around 8% between the start of April and the end of June, and is now up 45% since its recent low point in March.
This rally has also reconfirmed Buffett’s as a stock-picker. Shares in American Express, in which Berkshire Hathaway is the largest shareholder, jumped 71% during the quarter, while other investments such as Wells Fargo (up 70%) and Burlington Northern Santa Fe Corporation (up 22%) also performed well.
However, a number of Berkshire Hathaway’s subsidiaries remain exposed to the brutal state of the US economy. Buffett said the company’s operations in the jewellery, home-building and aircraft sectors all suffered.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
