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Warren Buffett admitted on Sunday that he had been wrong about the airlines during the coronavirus pandemic and had sold Berkshire Hathaway’s entire holdings in four U.S. airlines.
Buffett told the Berkshire Hathaway virtual annual meeting that he sold tickets from 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 am wrong, I think it has changed in a very important way.”
Berkshire sold more than $ 6 billion in shares last month related to airline trading.
On Saturday, the dean of the investing world held his popular annual Berkshire Hathaway meeting without the usual thousands of devotees. By video conference, Buffett said Berkshire was worth less today because he had made the decision to invest in airlines.
“I don’t know if in two or three years time if as many people will fly as many miles of passengers as they did last year,” he said.
“If business goes back to 70 or 80 percent, the plane doesn’t go away. You have too many planes.
Buffett also said that he had decided not to lend large sums of money as he did during the depths of the financial crisis because Berkshire was not finding attractive opportunities.
“We have not seen anything attractive,” he said. “The Federal Reserve did the right thing and they did it promptly and I salute them for it. But many companies that needed money. . . it came to finance enormously in the last five weeks. “
Buffett said corporate chiefs and financiers owed policy makers at the United States central bank a note of thanks for the speed and ferocity at which they responded to the credit market freeze in March, which in that moment left companies to collect the necessary cash.
The Fed moved quickly to help unfreeze capital markets, agreeing to buy investment-grade corporate bonds and exchange traded funds invested in junk credit while working to support money market and commercial paper market funds.
Those actions, Buffett added, meant that companies that in the past would have needed to turn to Berkshire for funds have been able to secure it elsewhere. Yields on both investment-grade and high-yield corporate bonds have fallen from peaks in March, when the recent market downturn was more severe.
“We were starting to receive calls,” he said, referring to companies seeking investment. “Some of them were able to get money on the public market quite frankly on terms that we wouldn’t have given them.”
According to financial data provider Refinitiv, companies around the world borrowed more than $ 1.1 trillion through bond markets in March and April, a record two months. Separate figures from the S&P Global Market Intelligence LCD unit showed that the companies had withdrawn revolving lines of credit worth more than $ 250 billion.
However, Berkshire’s lack of acquisitions and investments in preferred shares has highlighted some investors who remember the company’s actions in the aftermath of the 2008 financial crisis when it invested in Goldman Sachs, General Electric and Bank of America. Those investments signaled the comfort of one of the world’s richest men to invest, and for some offered a seal of approval to buy.
“Not all opportunities will come in the first two to three months of the crisis,” said James Shanahan, an analyst who follows Berkshire at Edward Jones. “They will come in time, and if Berkshire cannot lend on terms favorable to them, they will not put the capital to work. You can only conclude that he is patient and disciplined.
Buffett was joined at the annual meeting by Vice President Greg Abel, but without his usual combat partner Charlie Munger and the more than 40,000 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 that is known to have killed more than 200,000 people.
The so-called Oracle of Omaha started the meeting with a one-hour history lesson, reminding supporters that the United States had resisted and thrived after other crises. He led 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 print. One had only four words: “Never bet against America.” Another had six: “But never, never, bet against America”
“We have faced great problems in the past,” he said. “We have not faced this exact problem. . . but we face more difficult problems and the American miracle, American magic has always prevailed and will do so again. “
The leading company has been hit by the coronavirus pandemic, suffering a loss of $ 49.7 billion in the first quarter after its portfolio of stocks was hit along with a sell-off in the market. Berkshire’s extensive group of subsidiaries was hampered by government blockades and a decrease in consumption. Investment earnings generated by Berkshire’s insurance arm helped raise overall operating profit by 6%, the measure Buffett points to as one of the best means of evaluating the group’s performance, but earnings at the subsidiaries involved in transportation, energy and manufacturing declined.
