Warren Buffett, one of the world's richest men and CEO of conglomerate Berkshire Hathaway (BRK.A), once proclaimed that "the banking business is no favorite of ours." The comment came in one of his famous missives to Berkshire's shareholders by way of explaining that financial companies were too risky and opaque for the über-investor's tastes.
But that was in 1990. Today, well-timed investments in banks like Goldman Sachs (GS) and Wells Fargo (WFC) are looking like smart moves for Buffett and Berkshire Hathaway, according to figures contained in the company's quarterly earnings statement released Friday. So are bets on a number of other blue-chip stocks like Johnson & Johnson (JNJ) and Coca-Cola (KO). The company's third-quarter net income nearly tripled to $3.24 billion, or $2,087 per Class A equivalent share, compared with $1.06 billion, or $682 per Class A equivalent share, in the year-ago quarter.
Profits on derivatives linked to rising stock markets in the U.S. and abroad, as well as the falling cost to insure debt investments against default, boosted overall profits, even though Buffett has downplayed the role of such earnings (or losses, as was the case last year) in his company's results. Operating profit, which strips out investment gains, at Berkshire subsidiaries fell 0.67 percent to $2.06 billion, or $1,325 per Class A share in the quarter Berkshire said in a statement (PDF).
From GEICO and Fruit of the Loom to Nebraska Furniture Mart and the Acme Brick Company, Berkshire Hathaway owns a plethora of companies large and small.
But beyond Berkshire's operating results and broad financial market bets, the company's quarterly earnings statement contains a trove of information on how Buffett's bets on individual companies' stocks are performing. And it probably won't surprise die-hard fans of the so-called "Oracle of Omaha" that his equity portfolio outperformed the S&P 500 through the first nine months of the year.
Indeed, Buffett's stocks -- which also include American Express (AXP) and Kraft Foods (KFT) among others -- advanced 17 percent through Oct. 30, according to documents filed with the Securities and Exchange Commission (PDF). That's compared with a 14.7 percent gain in the S&P 500 over the same period.
And that doesn't even include Buffett's high-profile investment in Goldman Sachs, which has been looking smarter and smarter as the investment firm, and its competitors, return to profitability.
Berkshire holds the right to buy 43.4 million shares of Goldman stock before 2013 for $115 a piece, about two-thirds of Friday's closing price of $171.78. Exercising the options and selling the stock today would result in a $2.5 billion profit for Berkshire.
With returns like that, it's a good bet the banking industry has risen somewhat in Buffett's esteem.
Berkshire Hathaway's net profit triples while stock portfolio bests S&P 500