New Accounting Rules Trigger a Paper Loss for Berkshire, but Buffett Says It’s OK

Company has $110 billion ready to make a large cash acquisition.

Despite losing more than $1 billion, Warren Buffett’s Berkshire Hathaway returned $5.3 billion in Q1 2018 operating earnings from its other businesses, which include insurer Geico and Dairy Queen.

Buffett attributed the $1.1 billion net loss to accounting rule changes that applied to the company’s $170 billion equities portfolio, a risk he had warned investors about in a February letter. He wrote then that the changes would produce “some truly wild and capricious swings.”

The changes to generally acceptable accounting principles require the $700 billion-plus Berkshire to include fluctuations in unrealized gains and losses of its stocks in its earnings statements. Although Berkshire reported $58 billion in total revenue for the quarter, Buffett’s business reduced the value of equities investments by $6.2 billion from the year prior.

Because a large chunk of Berkshire is in effect an investment fund, the portfolio’s fortunes have an impact on the conglomerate’s bottom line. The stock market in the year’s first quarter was down, and so were the company’s investment holdings.

The wizard of Omaha told investors not to worry, saying that “the amount of investment gains/losses in any given quarter is usually meaningless.”

At Saturday’s annual shareholder meeting, Buffett said that Berkshire was still “open” to a large acquisition, with $110 billion in cash available to do it. While Buffett is looking “primarily in the US,” he told Yahoo Finance he was also open to business in other developed nations.

“I just want to hear about a big company that does something I understand that has a good business and a sensible price in mind,” he said.

Buffett did, however, mention during the Q&A session that he may not want to make a deal in smaller emerging markets because of “a lot of difficulties in market execution and taxation.”

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