Why Warren Buffett's Berkshire Hathaway Is Up 7% in 2014

Berkshire Hathaway has narrowly trailed the return of the S&P 500 this year, but through the first six months of 2014, Warren Buffett is likely very happy with how his business is performing.

Jun 24, 2014 at 11:51AM


As we're nearing the halfway point of 2014, I dove behind the scenes to see what Warren Buffett's Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) has done to cause its stock to rise by 7% on the year and what the next six months may hold.

Why the stock has moved
BRK.A Chart

As you can see in the chart above, Berkshire Hathaway narrowly trails the total return of the S&P 500, which includes dividends -- but remember Buffett is not a fan of paying those -- through the first half of the year.

After the first five or so weeks of the year the broader market tumbled, as fears about the investing landscape persisted thanks to geopolitical turmoil and concerns about the economic recovery in the U.S. arose.  And Berkshire Hathaway wasn't immune to the concerns. Yet those fears quickly subsided and things began to rebound throughout February.

But the big jump in Berkshire Hathaway came after the fourth quarter and resulting full-year financial results were announced on March 1. Berkshire Hathaway saw impressive gains across all of its businesses, as its insurance-underwriting income nearly doubled to $2 billion, its investment income rose by 9%, and the profits from its noninsurance businesses rose by 13% to $10.2 billion.

Combined, these resulted in its operating earnings jumping by 20% year over year:

$billions. Source: Company Investor Relations

This gain of 20% fails to even account for the unrealized gains from its investment portfolio, which grew by a staggering 61% from $38 billion at the end of 2012 to a stunning $61 billion at the end of 2013.

All of this is to say, it's no wonder the stock rebounded when the full-year results were revealed.

The steady movement
Since then, the year has been somewhat quiet for Buffett and Berkshire Hathaway. Thanks to a dip in the underwriting income available from its insurance business -- it was roughly sliced in half -- its earnings through the first three months of the year actually dropped by about 7% to $3.5 billion.

And apart from the announcement of the acquisition of a small subsidiary, which includes a Miami-based TV station, no major moves have been announced or hinted at.


The look ahead
Buffett has suggested he wouldn't buy back the shares of Berkshire Hathaway when they are trading above a 1.2 price-to-book-value multiple, and they currently sit right around a multiple of 1.4. Yet that shouldn't deter investors from considering an investment in Berkshire Hathaway itself, because there is still a lot to like.

All signs point to 2014 continuing to be a year in which Berkshire Hathaway progresses along and performs admirably well, as it continues to position itself to be at the center of the American economy through its railroad, energy, manufacturing, and other core operations -- to say nothing of its insurance businesses.

And knowing Buffett believes "both Berkshire's book value and intrinsic value will outperform the S&P in years when the market is down or moderately up," 2014 could be another great year of outperformance for Berkshire Hathaway.

Warren Buffett's biggest fear is about to come true
There is a lot to like about Berkshire Hathaway, but Warren Buffett just called this emerging technology a "real threat" to his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. It won't be long before everyone on Wall Street wises up, that's why The Motley Fool is releasing this timely investor alert. Click here to learn more about what's keeping Buffett up at night and the one public company we're calling the "brains behind" the technology.

Patrick Morris owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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