‘He’s Executing’
“It seems like he’s executing,” Gallant said of Buffett. “The stock price doesn’t always follow that.”
Berkshire faces challenges.
Carloads at Buffett’s railroad slipped 0.1 percent in the second quarter from a year earlier. While that’s a narrower decline than at its Western U.S. competitor Union Pacific Corp., some costs have been climbing at BNSF. Buffett pledged to spend $6 billion on upgrades in 2015 following delays last year that were tied to a surge in oil shipments and harsh winter weather.
“Outlays of this magnitude are largely unheard of among railroads,” he wrote in his annual letter to shareholders in February. “Our huge investments will soon lead to a system with greater capacity and much better service. Improved profits should follow.”
Buffett has been less sanguine about the future of Berkshire’s reinsurance operations. For decades, he’s used the premiums held by these businesses until paying claims, called “float,” to fund his stock picks and takeovers. In May, he said the prospects for that business had “turned for the worse” as hedge funds and other investors piled into the industry, driving down the price of coverage.
Insurance Strategy
To counteract that trend, Berkshire has begun to focus on underwriting policies directly for businesses. The company’s reinsurance chief, Ajit Jain, has been overseeing the effort even as he hunts for new deals. In June, Insurance Australia Group Ltd. agreed to cede a fifth of its premiums and risk to Berkshire, as part of a decade-long tie-up. IAG had more than A$9 billion ($6.6 billion) in premium revenue in 2014.
Buffett has less control over the companies in his stock portfolio -- and some of them have been struggling.
He invested almost $11 billion to amass a stake in IBM in 2011. Since then, the computer-services provider has worked to transform itself into a seller of cloud-computing technology and data analytics. Revenue has slipped for 13 straight quarters. IBM shares now trade below the price that Buffett paid to acquire them.