Billionaire investor Warren Buffet’s love for Apple Inc is taking a toll on Berkshire Hathaway Inc’s net worth and its bottom line.
Despite Warren Buffet’s optimism in view of falling prices of Apple Inc’s shares, Berkshire Hathaway Inc, took a giant punch in the face and suffered a huge quarterly decline in its net worth which will also hit its bottom line.
With the decline in prices of Apple’s shares, Berkshire’s Class A shares fell by 5.6% on Thursday, given that it is its biggest common stock investment.
The decline in Berkshire shares reflects Apple’s impact on Nebraska-based Berkshire’s book value, a key metric in Buffet’s system to measure growth.
Thursday’s decline in Apple’s shares cost Berkshire a 8.2% decline in its book value, according to Meyer Shields, an analyst with Keefe Bruyette & Woods.
The bulk of Berkshire’s roughly $219 billion of equities as of Sept. 30, which includes Kraft Heinz Co, suffered double-digit declines in this quarter.
If one were to assume Berkshire has not sold any shares, the value of its 5.3% stake in Apple Inc fell to nearly $36 billion on Thursday, down from $57.6 billion on September 30, 2018.
Although Apple Inc is considered a technology stock, Buffet places Apple as a consumer company rather than a tech company, a sector which Buffett typically shuns.
The falling prices of Apple Inc’s shares could potentially result in Berkshire reporting a fourth-quarter net loss, even if its dozens of operating businesses perform well.
This is because, a new accounting rule has been introduced which requires Berkshire to report unrealized investment losses with quarterly results.
Buffett will want investors to ignore the resulting swings.
According to Thomas Russo, who helps invest more than $10 billion at Gardner, Russo & Gardner in Lancaster, Pennsylvania, and whose largest investment is Berkshire, it would be prudent if investors were to focus on the value of Berkshire’s operating units.
“The willingness of Berkshire investors to hold shares based on the company’s intrinsic value has always been a strong suit for Warren,” said Russo. “That is being tested by the new accounting requirements.”