What happened
On paper, it would seem that the first half of 2020 was very pleasant for Warren Buffett, the investor who said, “Be greedy when others are scared and scared when others are.” Investors were certainly scared in February and March when the COVID-19 pandemic spread across the world, with the S&P 500 falling more than 30%.
But Buffett and Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) it mostly stayed on the sidelines when markets fell, surprising investors. And questions about that inaction have lingered about stocks in the subsequent months, prompting Berkshire shares to lose in the recent rally and stocks to drop 21% in the first half of the year, according to data provided by S&P Global. Market Intelligence.
Berkshire data by YCharts.
And that
Berkshire has built a reputation for using recessions to build up big stakes in long-term winners, making several deals with big banks famous during the 2008-2009 recession that have paid off.
But as markets fell in 2020, Berkshire’s most notable move was to sell, taking losses to exit big positions on the country’s four largest airlines. At his company’s annual meeting, Buffett appeared to be full of doubts about his decision-making, admitting that he had sold out of the positions because “I decided I had made a mistake.”
Warren Buffett. Image source: The Motley Fool.
Berkshire’s lack of activity during the recession seemed to surprise market watchers and exhausted the momentum in equities. As the broader indices rebounded in May and June, Berkshire Hathaway stocks remained stagnant in neutral.
Now what
Many investors have been seen as a lowercase fool for questioning Warren Buffett’s insight over the years, and I am reluctant to do so now.
Although broader markets have recovered most of what was lost during the first days of the pandemic, there are worrying signs that cases are increasing in many states, which could lead to a new round of business closings. If so, Buffett might have another chance to fire his so-called “elephant gun” and appear smarter than all of us who questioned him.
The entire conversation about the deal also distracts from the solid collection of businesses Berkshire has amassed over the years. The wholly owned asset portfolio yields more than $ 35 billion in operating cash flow annually. It also owns a number of high-performing stocks, including AppleAnd you still have a huge pile of cash to eventually put to work to create shareholder value.
It wasn’t the best six months to be a Berkshire Hathaway shareholder, but Buffett and his company have always been devoted to the long game. It is too early to rule out this superior performance for a long time.
