At the annual meeting of Berkshire Hathaway, Warren Buffett told the 40,000 attendees that he expects sharply lower earnings for the first quarter of 2011.
Insurance operations would be hurt by huge losses from the recent earthquake in Japan, and also from earthquakes in New Zealand and Australia that occurred prior to that one.
The company reported that it expected to see earnings total $1.51 billion for the quarter, less than half of the $3.63 billion reported in the same quarter last year. Buried in the news release was the surprising fact that there will be an $82 million loss on investments and derivatives for the first quarter.
During those three months, the S&P 500 was up by 5.9 percent. This is a very large gain for such a short time, and it is a little surprising to see that Buffett didn’t participate. His largest portfolio holding, Coca-Cola, increased less than 1 percent in the quarter, and that contributed a great deal to underperforming the market.
A weighted average of his most recently reported stock holdings would have shown a gain of about 2 percent in the quarter. The loss indicates either that Buffett made significant changes in his portfolio, or his large derivatives bets are hurting performance in a bull market.
Buffett will announce his recent portfolio changes in mid-May. Until then, we can only assume that his actions have been less bullish than his comments and the Oracle of Omaha is most likely reducing his exposure to US stocks as they rise. He did this at least once before, in 1999, and in time, the underperformance of that year was easily forgiven by investors.
Maybe this time is different, but those are expensive words to act on. Buffett’s holdings need to be analyzed closely when they are released, looking for clues of bearishness.
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