Buffett talks proudly and often about his experience as an investor, something few others can boast of, at least not to the same extent. He lived through World War Two, and as an investor has rode-out the Cuban Missile Crisis, bear markets in the 70s, 80s & 90s, the dot-com bubble, 9/11, the Great Recession, and today he is worth some $69.6 billion, personally. Without underestimating the pandemic, he remains bullish about the capacity of the USA to innovate and overcome economic tailwinds, no matter how challenging.
However, his investment company Berkshire Hathaway (NYSE: BRK.B) has seen close to $50 billion wiped off its net value, prompting some to say he has lost his golden touch. Fellow billionaire investor Ken Fisher has said the issue is Buffett’s age, which he claims has led him to become static in the face of a crisis. The central claim here is that Buffett failed to capitalize on the COVID-19 selloff, making only $1.8 billion in net stock purchases in the first quarter of 2020.
These figures, which have disappointed some investors, belie other factors at play. The losses are largely in line with what is going on across the market, and with the exception of Buffett’s decision to dump all airline stocks — which includes positions in the ‘big 4’, United (NYSE: UAL), American (NYSE: AAL), Southwest (NASDAQ: LUV), and Delta Airlines (NYSE: DAL) — little dramatic has happened. In fact, quarterly operating profit, perhaps the best indicator of how Berkshire’s businesses are doing, increased by 6% compared to the same period of 2019.
Aversion to Risk
Buffett is known as being somewhat risk-averse, a trait that has kept Berkshire Hathaway only minimally involved in the tech sector, one of the notable exceptions being their 5.22% stake in Apple (NASDAQ: APPL) — and the likes of Apple can hardly be seen as risky bets. Perhaps, in that sense, there is a different way to read Buffett’s decision to hold onto Berkshire’s massive cash reserves. Perhaps, like a veteran poker player, he just knows when to hold onto his hand. This could be read as a sign that he expects further volatility before this thing is done, even if he fundamentally believes that “nothing can basically stop America.” It is also worth noting that Berkshire Hathaway recorded $137 billion in cash and equivalents at the end of Q1, up from $128 billion at the of 2019, meaning that the company still has a massive capacity to move when the moment is judged ripe to do so.
Many analysts have tried, mostly incorrectly, to guess at what might be Buffett’s “next big move,” so I don’t intend on following in their path, especially after he shocked the world of investment by dumping airline stocks. However, it may be worth looking at some of the things he did in the recent past for inspiration regarding future directions.
One of the less-talked-about but pivotal investments Buffett made in 2019 was in green energy. Berkshire has long been deeply invested in utilities, notably in coal, which has led to criticism from environmental groups. And even though the investor swears regularly that his political views shouldn’t have any impact on his company’s investments, the direction his utility investments have taken is broadly away from fossil fuels, even if the change isn’t happening overnight. The USA has just signed up to a summit for global green recovery with other major powers including China, India, and the EU, and if there should be a change of administration in November this will likely make the winds of change even stronger. It seems like a safe bet that Buffett would be on board with that.
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Contributing Writer at MyWallSt
Ronan is an admirer of companies like Patagonia, who combine style with functionality, and a pioneering approach to mitigating their impact of society and the natural world.