2026-11-08

Berkshire Hathaway's Net Profit Falls 28% in Q3 - So Why Did Buybacks More Than Double? Inside Greg Abel's Paradoxical Signal

Written & reviewed by the TradeSmrt editorial team · 2026-11-08

In this article

What Happened
Why Buybacks Doubled in the Same Quarter Profit Collapsed
What to Take Away From This
FAQ
Sources

What Happened

On Saturday, November 7, Berkshire Hathaway released its third-quarter 2026 results, continuing its long-standing habit of publishing first- and third-quarter earnings on Saturday mornings via an SEC 8-K filing and its own press release. The headline numbers were not pretty. Operating earnings - profit from Berkshire's actual underlying businesses - came in at $12.705 billion, down 5.8% from $13.485 billion a year earlier. Net earnings, which fold in unrealized gains and losses on Berkshire's stock portfolio, fell much further: $22.112 billion versus $30.796 billion in the same quarter last year, a 28.2% drop. Worth noting, though: for the first nine months of the year, cumulative operating earnings actually rose to $37.034 billion from $34.286 billion a year ago, an 8% year-over-year gain. Taken in isolation, the third quarter looks like a reversal; viewed year-to-date, the underlying trend is still pointing up.

The main drag came from the insurance side, and specifically from GEICO, Berkshire's auto insurer. After-tax insurance underwriting operating earnings fell 43% to $1.35 billion, down from $2.37 billion a year earlier, as GEICO's claims costs rose and underwriting expenses climbed alongside them. The insurance division's net investment income - earned by putting policyholder float to work - also fell 14% to $2.7 billion, reflecting lower short-term interest rates squeezing the yield on that float. Not every segment struggled, though: BNSF railroad, Berkshire Hathaway Energy, and the manufacturing, service, and retail businesses all posted higher operating earnings than a year ago, offsetting a meaningful chunk of the insurance weakness.

The most striking detail in the release was the buyback number. Berkshire repurchased roughly $9.6 billion of its own stock in the third quarter - more than double the pace of its second-quarter buybacks. In other words, in the very quarter net earnings fell by more than a quarter, the company was its own most aggressive buyer of stock. Cash and Treasury bills stood at $377.4 billion, down slightly from the roughly $382 billion record set at the end of the second quarter. Stripping out railroad- and utility-related cash and T-bill payables, the more comparable figure was $352.3 billion, down 1.9% from the prior quarter.

Why Buybacks Doubled in the Same Quarter Profit Collapsed

Making sense of this starts with recognizing that "operating earnings" and "net earnings" are fundamentally different kinds of numbers. Since a 2018 U.S. accounting rule change, Berkshire has been required to run unrealized gains and losses on its equity holdings - Apple, American Express, Coca-Cola, and the rest - through its income statement every single quarter. This quarter did include a $7.7 billion unrealized gain on the stock portfolio. The problem is that the same quarter a year ago carried an even larger unrealized gain, so this year's net earnings look far worse mostly because of that base effect, not because the underlying business deteriorated by anywhere near 28%. This is precisely the distinction Buffett spent decades hammering home in his annual letters when he urged shareholders to focus on operating earnings rather than the headline net-income line, which can swing wildly from one quarter to the next purely because of stock-market noise.

So why increase buybacks at all? Berkshire's repurchase policy, unlike that of most companies, runs on an explicit internal rule: the CEO - Greg Abel, who succeeded Buffett in that role - buys back stock only when, in consultation with Buffett, he judges the share price to be meaningfully below a conservatively estimated intrinsic value. Read that way, the jump in buybacks signals that Abel currently views Berkshire's stock as trading at a discount to what he believes the company is actually worth. There's a real paradox embedded here: the same quarter that produced an ugly accounting headline is the one in which management chose to step up purchases, because Abel is clearly applying a completely different yardstick - intrinsic value, not reported net income - to that decision. GEICO's widening underwriting loss, meanwhile, looks less like a one-off problem and more like a familiar cyclical pattern in property-and-casualty insurance: when auto-repair and medical-cost inflation pushes claims costs higher, underwriting margins get squeezed temporarily, and insurers typically claw the margin back over the following quarters as premium increases work their way through the book.

Investors often ask why that $377.4 billion cash pile hasn't been put to work. The honest answer is that Berkshire has struggled for years to find large acquisitions at prices it considers reasonable. It has made smaller moves this year, building out stakes in homebuilders like Lennar and Taylor Morrison, but those remain a rounding error relative to the overall portfolio. That's exactly where the buyback acceleration becomes meaningful: in the absence of an obvious large target, Abel's next-best option is buying back Berkshire's own, apparently undervalued, stock.

What to Take Away From This

The first lesson is that with a sprawling conglomerate, the single headline net-earnings figure is the wrong place to start. Look at operating earnings and, beneath that, the segment-level breakdown. A temporary weak quarter in insurance can obscure genuinely solid growth at the railroad, energy, and manufacturing businesses sitting right next to it. Reading "net earnings fell 28%" as proof the whole business is deteriorating is a classic misreading of a conglomerate's results.

The second lesson is not to treat every buyback announcement as an automatic bullish signal without asking what triggers it. Berkshire is one of the rare companies with an explicit, disclosed intrinsic-value test governing its repurchases, which makes this quarter's doubling genuinely informative about management's own view of the stock. Plenty of other companies buy back stock mainly to flatter earnings-per-share, with no comparable discipline behind the decision - a distinction worth keeping in mind before assuming all buybacks mean the same thing.

The third lesson is to remember that insurance is an inherently cyclical business. One rough quarter of underwriting results at GEICO doesn't by itself say anything definitive about the long-term competitiveness of the franchise or of Berkshire as a whole. Tracking the loss-ratio trend over the next several quarters, as premium increases work through the business, is a far more useful signal than reacting to a single quarter's underwriting dip.

FAQ

Net earnings fell 28% - why shouldn't that worry investors much?

Most of that decline traces back to an accounting base effect: this year's unrealized equity-portfolio gain was simply smaller than last year's, not because the stock portfolio performed badly, but because the comparison quarter a year ago happened to be unusually strong. Analysts and institutional investors weight Berkshire's volatile net-earnings line far less than its operating earnings, buybacks, and cash generation. It's also worth remembering the release landed on a Saturday, so markets won't have a chance to react until Monday's open.

Why did GEICO's underwriting losses widen?

Rising auto-repair and medical-cost inflation pushed claims costs higher, and underwriting expenses climbed alongside them. This is a common cyclical pattern across the property-and-casualty insurance industry, and margins typically recover gradually over subsequent quarters as premium increases take effect.

Why does a $9.6 billion buyback, double the prior pace, matter so much?

Berkshire doesn't buy back stock on autopilot. The CEO only authorizes repurchases when the share price is judged, in consultation with Buffett, to be meaningfully below the company's conservatively estimated intrinsic value. A doubling in buyback activity is therefore a direct signal that Greg Abel currently views Berkshire shares as undervalued relative to that benchmark.

Why does Berkshire still have $377.4 billion sitting in cash?

Because it has struggled for years to find a large acquisition target at a price it considers reasonable. This year brought smaller moves, like building stakes in homebuilders Lennar and Taylor Morrison, but those are modest relative to the size of the overall portfolio. The buyback acceleration can be read as Abel's alternative use of capital in the absence of a bigger deal.

Sources

This article is an independent synthesis and analysis based on the reporting below, not a reproduction of the original articles. Please check the sources directly for the latest figures.

⚠️ This article is for informational purposes only and does not constitute investment advice. Market conditions change constantly, so please verify the latest data before making any investment decisions.