Accounting rule Warren Buffett loathes boosts Berkshire's bottom line to $81B

'Those market gyrations led to a crazy 1,900% increase" in Berkshire's bottom line

Berkshire Hathaway earned $81.4 billion last year, an exponential increase from the year before, but it's mostly because of an accounting rule that billionaire CEO Warren Buffett vehemently disagrees with.

About $53.7 billion of the 2019 profit was due to appreciation in the value of the Omaha, Nebraska-based company's stock holdings, which regulators now require Berkshire to include in its bottom line even though Buffett didn't cash in on those gains by selling shares.

GET FOX BUSINESS ON THE GO BY CLICKING HERE

The policy change, imposed in 2018, is a sharp reversal from the previous rule that generally allowed companies to include such valuation changes only when they were realized through a sale.

Berkshire's earnings reports filed under the new system "glaringly illustrate the argument we have with the new rule," the 89-year-old dubbed the "Oracle of Omaha" for his investing prowess wrote in his annual letter to investors published Saturday.

WHY WARREN BUFFETT LIKES ELEPHANTS AND MOATS

In 2018, when the Dow Jones Industrial Average sank 5%, the value of Berkshire's holdings sank by $26 billion, so full-year profit was only $4 billion, he noted.

Juxtaposed with last year's increase, as the Dow surged 22%, "those market gyrations led to a crazy 1,900% increase" in earnings, Buffett said.

Stocks In This Article:

"Meanwhile, in what we might call the real world, as opposed to accounting-land, Berkshire's equity holdings averaged about $200 billion during the two years, and the intrinsic value of the stocks we own grew steadily and substantially throughout the period," he added.

WARREN BUFFETT'S FIVE BIGGEST HOLDINGS

At the end of 2019, Berkshire's stock holdings of $248 billion included a 19% stake in credit card company American Express worth $18.9 billion, a $74 billion stake in iPhone-maker Apple and 9.3% of Coca-Cola's outstanding stock, valued at $22 billion.

Over time, Buffett said, he expects Berkshire's stock portfolio to deliver "major gains, albeit in an unpredictable and highly irregular manner."