Warren Buffett Reports $50 Billion Loss, Dumps Airline Stocks

Warren Buffett Reports $50 Billion Loss, Dumps Airline Stocks

almost 4 years ago2 mins

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Berkshire Hathaway, the conglomerate controlled by legendary investor Warren Buffett, reported earnings over the weekend – revealing a $50 billion loss in the first quarter of 2020 and the sale of all its extensive stakes in US airlines 😳

What does this mean?

Buffett only began buying airline stocks in 2016, but quickly amassed roughly 10% stakes in Delta, American, Southwest and United Airlines. On Saturday, however, the “Oracle of Omaha” revealed an abrupt about-turn – citing the investments’ significantly reduced attractiveness.

The coronavirus crisis has grounded two thirds of global aircraft and sent US travel demand plummeting 95%. Even when more planes are cleared for takeoff, Buffett worries that the lasting economic impact will mean an oversupply of seats – and despite a recent US government bailout for the country’s biggest airlines, additional debts of $10 billion each 😟

Berkshire’s own eye-catching quarterly loss, meanwhile, was simply down to the on-paper values of its extensive investments in other companies falling. Profit at Buffett’s own businesses rose 6% – and with US stocks climbing 13% since the end of March, much of the hit to his investment portfolio will now have been recovered.

Gains at Geico made up for coronavirus-cuffed performance elsewhere
Gains at Geico made up for coronavirus-cuffed performance elsewhere

Why should I care?

Airline stocks lost more altitude on Monday following the news. But investors selling now may be missing a trick. While the $300 billion global aviation industry has been hit hard by the coronavirus – as demonstrated by engine-builder Rolls-Royce’s own announcement of extensive job cuts over the weekend – it’s possible that big, financially resilient airlines could benefit in the long run from rivals and fuel costs collapsing 🤔

As our Pack on the legendary investor discusses, Buffett has spent years complaining that US stocks are overpriced. Yet even as the market tanked last quarter, Berkshire once again sold more shares than it bought – further swelling its cash reserves to $137 billion.

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That contrasts with the 2008 financial crisis, when Buffett snapped up cheaper stocks – and taken with Berkshire’s own recent share-price underperformance may suggest that even the world’s most famous stockpicker is finding the coronavirus a challenge. Still, Buffett’s advice for the average investor remains the same: simply buy the S&P 500.

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