Ten years ago, I attended my first Berkshire and Hathaway shareholder’s meeting. It was a Saturday, and CEO Warren Buffett opened the annual meeting presenting the quarterly results. At the time, I thought this was odd given that the markets were closed, as most companies report earnings during market hours. After Buffet’s introductory remarks though, it became clear that Berkshire was increasingly concerned about the accounting complexities of reporting financials, and Mr. Buffett spent significant time detailing how investors should treat financial reporting cautiously.
In recent years, accounting rules have continued to become more complex, and this is the main reason why Berkshire Hathaway continues to report its quarterly results during the weekend when the stock market is closed. In one of his recent letters to shareholders, Mr. Buffett complained about the recent accounting requirement as he believes they will “severely distort” Berkshire’s results and potentially “mislead commentators and investors.” If results were released during regular business hours, they could be misused by the media and analysts, projecting false expectations which could result in Berkshire shares price swing.
The ways Buffet, Monger, and Greg Abel, (the vice chair of Non-Insurance Business Operations, which is expected to replace Warren Buffett) plan to mitigate the perceived accounting risk, is to continue their practice of publishing Berkshire’s quarterly and annual results late on Fridays, or early on Saturdays morning after the markets close. In so doing the analysts, the journalists and the investors have time to develop their own appropriate and more balanced analysis before Monday’s global market re-open.
To support Berkshire’s practice, studies from Kellogg School of Management and SSRN (a leading research publication), found that firms that announce their earnings on Friday or Saturday, are providing investors more time to assess the results, resulting in more balanced analysis and market guidance. In other words, there is less space for investors and media over-reactions, and emotional decisions, which could misguide market participants. According to Kellogg, companies that report earnings after market close on Friday or Saturdays, experience lower volatility when market opens in comparison to other firms that announce their earnings during trading hours.
There is a flip side to that coin
Quarterly earnings take place towards the end of every quarter in a budget year, June, September, December, and March. The reporting typically lasts approximately six weeks from the end of each quarter. Most companies report their earnings during market trading hours regardless of their company’s performance. While the rationale behind Berkshire’s weekend reporting strategy is clear, there are critics that attribute the late reporting to disguise negative results and buy time to avoid shares price swings.
On Saturday August 5 th Berkshire Hathaway reported robust second quarter operating earnings. Quarterly earnings rose for the holding company and for most of its controlled businesses resulting in earnings of $35.9 billion in Q2 of 2023 versus a loss of $43.6 billion in the Q2 of 2022. Quarterly operating profit rose by 6.6 % to $10.04 billion, from $9.42 billion last year. Berkshire’s large cash position grew to $147.377 billion at the end of June, reaching a new record. Operating earnings decreased only across Berkshire’s energy and freight railroad companies, BHE and BNSF. Thanks to share repurchases, operating earnings per share for year-to-date 2023 were a huge 75% above 2019. Class A shares hit a new record close of $541,000 at the beginning of August, exceeding the Berkshire previous high of $539,180 reached on March 22, 2022. The stock has gained 13.8% this year.
Warren Buffet’s way
While criticism of Warren Buffet abounds, the Oracle of Omaha (the nickname for Warren Buffett) continues to deliver outstanding performance regardless of market conditions. Some of his critics argue that he has been missing out on tech opportunities, others that his large share buybacks are not adding value, and others that he should not be sitting on a $ 150 billions of cash. While the first two criticisms are clear to most, let me address the cash pile point. Berkshire does not hold $147 billion in cash. Instead, Berkshire primarily places its money in U.S. Treasury Bonds. In its 2023 Q2 letter to shareholders for instance, Berkshire declared that it held $97.3 billion in U.S. Treasury bills. An additional $24.5 billion of Berkshire’s cash and cash equivalents were invested in Treasuries with maturities of three months. These are all short-term investments that can easily be converted to cash .
I believe at the core of Berkshire’s lasting performance is its selective investment approach which is well captured in the billionaire Warren Buffett famous quote “Don’t invest in something you don’t understand” and “The important thing is to know what you know and know what you don’t know”.