Berkshire Hathaway, the conglomerate run by billionaire Warren Buffett, had a pretty good first quarter.
Operating earnings jumped 20% year-over year to $US2,583 per share. Analysts were looking for $US2,373 per share.
To be clear, that’s for each A-share of Berkshire Hathaway, which closed at $US215,800 on Friday.
Total operating earnings jumped to $US4.24 billion during the quarter, up from $US3.53 billion a year ago.
Operating earnings from Berkshire’s insurance underwriting business grew 4% to $US480 million.
Railroad, utilities and energy business earnings jumped 24.6% to $US1.466 billion.
Financial weapons of mass destruction
One detail from Berkshire’s filings we’re always interested in is the value of Buffett’s long-term derivative bets on the global stock markets. In case you forgot, Berkshire had sold put options on the S&P 500, FTSE 100, Euro Stoxx 50, and the Nikkei 225.
Berkshire collected premiums when it sold these options. Because they are put options, Berkshire is obligated to pay the option buyer should the indices fall below the exercise price. It’s important to note that these are European-style options, which means they can only be exercised at maturity. As a general rule, the value of these positions increase when stocks go up and vice versa.
This bet was controversial because in his 2002 letter to Berkshire Hathaway shareholders, Buffett dubbed derivative securities as “financial weapons of mass destruction.”
In Q1, the value of these options jumped by 1.311 billion. Of course, these are just paper gains, as Buffett expects to hold them until they expire.
From Berkshire Hathaway’s 10-Q (click to zoom):
This announcement comes a day before Buffett leads Berkshire Hathaway’s annual shareholder meeting.