What investors can take away from Berkshire Hathaway's latest earnings report

For years investors have pored over the stock trades of arguably the most successful investor of all time for good reason. But with Warren Buffett no longer at the helm, the question is whether Berkshire Hathaway, the conglomerate-cum-investing vehicle that the Sage of Omaha ran for six decades, can continue offer investors clear, actionable market signals.

New chief executive Greg Abel, who succeeded Buffett at the start of this year, has finally started to make his mark with the company buying roughly $20bn more in shares than it sold in the second quarter. It's the first time in 15 quarters that it's been a net buyer of equities, finally putting some of the firm's vast cash holding to work.

Here's a quick look at some of the lessons from the Q2 earnings update:

Berkshire is putting cash to work again: the cash mountain is finally coming down, with cash and Treasury holdings falling from about $397bn to $365bn, with Berkshire purchasing roughly $23bn in shares last quarter. After three years of largely sitting on the sidelines, trimming positions and raising cash, Abel's decision to jump back into equities when US stocks are at record highs looks especially interesting. Buffett's decision to raise cash indicated he felt equities were overvalued, but the decision has seen it trail the market: the S&P 500 is up +77% in the last three years. Perhaps the lesson here is that oftentimes it pays to remains invested in the market and ride out the ups and downs despite signs of overexuberance.

Discipline remains key: This doesn't mean Abel has abandoned Buffett's disciplined approach by any means. Berkshire still has an extraordinary $365bn liquidity reserve. The lesson is that while the company may have moved from a cash accumulation phase to a cash deployment phase, it's still laser-focused on valuations.

Alphabet's AI spend is not a turn-off: Probably the most significant single-stock purchase we can divine inspiration from is that of Alphabet. Berkshire bought about $10bn of the Google owner's stock as it anchored the monster $85bn capital raise by the firm. It means Alphabet is now among its 5 largest equity holdings alongside long-term holdings American Express, Apple, Bank of America and Coca-Cola. Investors will get a clearer picture of Berkshire's holdings when it reports its 13-F filing to US securities regulators. The sense from the Alphabet investment is that Berkshire is comfortable it is not a speculative punt on AI but a high-return, cash-generative consumer/infrastructure business with a formidable moat. It shows Berkshire is not necessarily going to be put off by AI spending by one company even if more broadly it's steering clear of AI hype.

Buybacks are a signal too: A clear sign of confidence perhaps was Berkshire's purchase of $4.5bn of its own shares in Q2, up from $235mn in Q1. This seems to be Abel saying that Berkshire stock is cheap enough to be the best use of cash. Shares of Berkshire have risen just 3% this year against the S&P 500's 13% gain, so this makes some sense. And although its insurance business was a bit of a weak spot, where earnings fell by 13%, operating earnings across the group rose 16% in the quarter, easily beating expectations. There is a particularly bright spot in TTI, which sells electronics parts, as it benefits from booming AI demand. But it's also the case that buybacks indicate the company continues to find few compelling reasons to deploy its capital elsewhere in the market.

Classic Berkshire: the second quarter results included the $8.5bn acquisition of homebuilder Taylor Morrison. This is pure Buffett - an understandable business, real assets, a large addressable market, long-duration US exposure...it may not be the $50-$100bn "elephant" that Berkshire investors would like to see but it shows Berkshire's DNA remains largely unchanged.

And finally...apart from the shift from cash accumulation to cash deployment, which looks fairly modest overall, we should not the context. The S&P 500 is still heavily dependent on AI-related earnings and capex. Berkshire owns relatively little of that ecosystem directly and consequently has lagged during periods when megacap technology dominates. But Berkshire is now using that underperformance to buy its own shares, while simultaneously taking a huge position in Alphabet. It looks like a fairly classic Berkshire manoeuvre: don't chase the market's most expensive winners; wait until the price/value relationship improves and then deploy very large amounts of capital.