Berkshire's impressive Q2 Earnings

Berkshire Hathaway's operating profits after taxes increased 16% in the second quarter to 13 billion on the strength of the company's railroad, energy, manufacturing, service, and retailing units.

It's important to note that these operating profits exclude investment gains and losses.

The company is also stepping up their buyback program, with $4.5 billion of stock bought back from $235 million in the first quarter. This is the highest amount we've seen Berkshire buying back in a decade. Famously, Buffett said that he will only buy back Berkshire stock when he believes it's undervalued. It's reasonable to think that Greg Abel doesn't think any differently.

Just like my last post on Amazon, it's important to look into the details of Berkshire's earnings. These earnings gains also reflect one-time currency gains in the second quarter that compared with currency losses in the year-earlier period. The main source of these currency swings is related to the company's borrowings in foreign currencies, mainly Japan's yen. The Yen borrowings help finance and hedge the company's investments in five Japanese trading companies.

Berkshire's cash position

Cash totaled about 365 billion on June 30th, down from 380 billion the previous quarter. Even though these cash figures are down, they are still by far the most for any U.S. company.

Berkshire's stock portfolio

One reason for the cash decline is because Berkshire was a net buyer of stocks this quarter. The company bought $23 billion worth of stock, including a $10 billion investment in Alphabet.

Insurance weakens

Insurance underwriting declined 13.1% to $1.7 billion after taxes despite a lack of material catastrophe losses in the period. The major contributor to the lower underwriting income was a 45% drop in underwriting profits at Geico, Berkshire’s auto insurer, to about $1 billion before taxes.

Geico’s combined ratio, a key profit measure, weakened to 91% from about 83.5% in the year-earlier period. The combined ratio measures losses and expenses as a percentage of premiums; a lower number is more favorable.

Insurance investment income was down 9% to $3.1 billion, reflecting lower short-term rates, which depressed income from Berkshire’s big Treasury holdings and other cash and cash equivalents.

My conclusion

I think it's time to buy. I don't know why I haven't pulled the trigger yet. I might be getting in at a less favorable price when the market opens on Monday, since these earnings were announced today, but it's time for me to buy. I'll be investing anywhere from $25-50k

Sentiment: bullish