Buffett Says, ‘Bonds Away’

The ideal holding period is forever, billionaire Warren Buffett used to say of stocks. Apparently, the same doesn’t hold true for bonds.

Berkshire Hathaway Inc., Buffett’s investment and insurance company, reported Monday that second-quarter earnings more than quadrupled, buoyed by a well-timed bet on interest rates.

Berkshire said net income rose to $1.18 billion, or $947 a diluted Class A share, from $278 million, or $226 a share, a year ago.

Most of the Omaha company’s profit--$864 million--came from securities sales. Of that sum, more than half was attributed to sales of zero-coupon Treasuries, bonds issued at a deep discount to face value and highly sensitive to interest rate swings. Second-quarter 1997 profit included $23 million of gains on investment sales.

Buffett, who became a legend through investments in growth stocks such as Coca-Cola and Gillette, also has a knack for bond-market investing. In the last year, U.S. bond prices rallied enough to drive yields down almost 1 percentage point.

Berkshire also said second-quarter profit, excluding sales of investments, increased 22%, fueled by its Geico Corp. auto insurance unit. Earnings rose to $312 million, or $251 a share, from $255 million, or $207, a year ago.

Geico, the seventh-largest U.S. auto insurer, has an 8% underwriting profit margin, and the number of customers it serves is expected to grow 19% this year, up from 16% growth last year, Berkshire said.

“Geico, like all the other auto insurers, is having a grand old time,” said Ira Zuckerman, an analyst at Nutmeg Securities in Westport, Conn.

Berkshire’s Class A shares climbed $745 to $70,850, and its Class B stock advanced $23 to $2,365. Both trade on the New York Stock Exchange.

Berkshire owns companies in industries ranging from ice cream franchising (International Dairy Queen) to footwear (Dexter Shoe).

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Buoyed by Bonds

Berkshire Hathaway Class B shares have bounced back a bit after falling recently with the broader market. Sales of zero-coupon Treasury notes have fueled a surge in quarterly revenue.

Monday close: $2,365

Source: Bloomberg News