Warren Buffett conceded on Sunday that he had got it wrong on airlines during the coronavirus pandemic and had sold Berkshire Hathaway’s entire stakes in four US carriers.
Mr Buffett told Berkshire Hathaway’s virtual annual meeting that he sold-out of American Airlines, Delta Air Lines, Southwest and United Airlines in April.
“It turns out I was wrong,” he said. “The airline business — and I may be wrong and I hope I'm wrong — I think it has changed in a very major way.”
Berkshire sold more than $6bn of stock last month related to the airline trade.
On Saturday, the doyen of the investing world conducted his popular Berkshire Hathaway annual meeting without the customary thousands of devotees. By video conference, Mr Buffett said Berkshire was worth less today because he had taken the decision to invest in airlines.
“I don't know if two or three years from now if as many people will fly as many passenger miles as they did last year,” he said.
“If the business comes back 70 or 80 per cent, the aircraft doesn’t disappear. You've got too many planes.”
Mr Buffett also said that he had decided against lending large sums as he did during the depths of the financial crisis because Berkshire was not finding enticing opportunities.
“We haven't seen anything attractive,” he said. “The Federal Reserve did the right thing and they did it very promptly and I salute them for it. But a lot of companies that needed money . . . got to finance in huge ways in the last five weeks.”
Mr Buffett said corporate chieftains and financiers owed policymakers at the US central bank a thank-you note for the speed and ferocity at which they responded to the credit market freeze in March, which at the time sidelined companies from raising needed cash.
The Fed moved swiftly to help thaw capital markets, agreeing to buy investment grade corporate bonds and exchange traded funds invested in junk credit at the same time it worked to backstop money market funds and the commercial paper market.
Those actions, Mr Buffett added, meant companies that would have in the past needed to tap Berkshire for funding have been able to secure it elsewhere. Yields on both investment grade and high yield corporate bonds have fallen from peaks hit in March when the recent market drop was at its most severe.
“We were starting to get calls,” he said, referring to companies seeking out investment. “A number of them were able to get money in the public market frankly at terms we wouldn’t have given to them.”
Companies across the globe have borrowed more than $1.1tn through bond markets in March and April, two record setting months, according to financial data provider Refinitiv. Separate figures from S&P Global Market Intelligence unit LCD showed companies had drawn down revolving credit facilities worth more than $250bn.
Nonetheless, the lack of acquisitions and preferred stock investments by Berkshire has stood out for some investors who remember the company’s actions in the fallout of the 2008 financial crisis when it invested in Goldman Sachs, General Electric and Bank of America. Those investments signalled the comfort of one of the world’s wealthiest men to invest, and for some offered a seal of approval to buy themselves.
“Not all the opportunities will come in the first two-to-three months of the crisis,” James Shanahan, an analyst who follows Berkshire at Edward Jones, said. “They'll come over time and if Berkshire can't lend at terms that are favourable to them they won't put the capital to work. You can only conclude he's being patient and disciplined.”
Mr Buffett was joined at the annual meeting by vice-chairman Greg Abel, but without his usual sparring partner Charlie Munger and the 40,000-plus shareholders who normally descend on Omaha, Nebraska. Berkshire told shareholders not to attend the company’s annual meeting in person in light of the coronavirus outbreak which is known to have killed more than 200,000 people.
The so-called Oracle of Omaha began the meeting with an hour-long history lesson, reminding his followers that the US had endured and prospered after other crises. He ran investors through the Great Depression, the Civil War and the outbreak of the Spanish flu, with a series of black-and-white slides with simple facts written in Times New Roman font. One had only four words: “Never bet against America”. Another had six: “But never — never — bet against America”
“We faced great problems in the past,” he said. “We haven't faced this exact problem . . . but we faced tougher problems and the American miracle, the American magic has always prevailed and it will do so again.”
The company he leads has been hurt by the coronavirus pandemic, suffering a $49.7bn loss in the first quarter after its stock portfolio was hammered alongside a broad market sell-off. Berkshire’s sprawling group of subsidiaries were hampered by government lockdowns and a decline in consumption. Investment gains generated by Berkshire’s insurance arm helped lift overall operating earnings 6 per cent, the measure Mr Buffett points to as one of the best means to evaluate the group’s performance, but profits at subsidiaries involved in transport, energy and manufacturing all declined.
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Warren Buffett sells all stakes in US airlines - Financial Times
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