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Why Shares in Berkshire Hathaway Fell in June

What happened

Shares in Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) declined by 13.7% in June, underperforming the benchmark S&P 500 index's decline of 8.4%. The place to start when looking at why is by analyzing what's in the Berkshire Hathaway portfolio. So here's a table of all the holdings above 3% in the portfolio as of March 2022.

Company

Sector

Portfolio Weight

Apple

Consumer electronics

42.1%

Bank of America

Bank

11.3%

American Express

Financial services

8%

Chevron

Energy

7%

Coca-Cola

Consumer staples

7%

Occidental Petroleum

Energy

3.6%

Kraft Heinz

Consumer staples

3.5%

Data source: Berkshire Hathaway SEC filings.

As you can see below, Apple's performance in June was pretty much in line with the market, and the leading consumer staples stocks (Coca-Cola and Kraft Heinz) outperformed the market. However, the finance and energy stocks significantly underperformed. For reference, Berkshire holds a further 7% in banking and finance stocks.

Data by YCharts

The performance in June marks a reversal of fortune because, going into the month, Berkshire Hathaway was up in 2022 with a 5.2% gain compared to a 13.3% decline in the index. In addition, energy and consumer staples led outperformance to the start of June.

So what

The reversal in Berkshire Hathaway's performance reflects the shift in the market's mood more than any fundamental change in the long-term prospects of the companies in the portfolio. Speculators likely bought into the type of stocks seen as benefiting from inflationary trends (energy) and kept buying until the Federal Reserve acted aggressively to combat inflation by hiking rates.

However, as the market anticipated and then digested the Federal Reserve rate hike in the middle of June, it sold off the "inflation plays" as well as the cyclical, banking, and financial stocks. The idea is that rising rates will make spending and investment more expensive, meaning end-market demand will tail off.

Now what

The market will do one thing, and Buffett will do another. Reacting to near-term market movements and trying to trade sentiment and mood changes among investors is rarely a winning strategy over the long term. Indeed, Buffett's success as an investor lies precisely in avoiding this kind of knee-jerk trading. Instead, Buffett tends to favor buying and holding companies for their long-term fundamental earnings power. And while the market is panicking, it's worth noting that Berkshire Hathaway is only down 1% on a year-over-year basis. Something to consider.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool recommends Kraft Heinz and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long January 2024 $47.50 calls on Coca-Cola, long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.


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