Some recent moves by the investment mastermind have prompted commentators to announce the end of an era, but could such predictions be premature?
In the last couple of months, with the world engulfed by the COVID-19 pandemic and the economy in turmoil, reassurance and stability have seemed hard to find, so it’s only natural that many eyes have been on the investing guru Warren Buffett. Buffett, CEO of Berkshire Hathaway (NYSE: BRK.B), is one of the richest people in the world, and is an inspiration for many investors. Buffett has lived through World War Two, the Cuban Missile Crisis, bear markets in the 70s, 80s & 90s, the dot-com bubble, 9/11, and the Great Recession.
However, part of the reason why some are calling it the end of an era is precisely because of his experience. Warren Buffett is 89 years old, and no amount of money can protect him from the ravages of time. 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.
In addition to these charges, some shockwaves were felt when Buffett decided 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). This came as a big surprise precisely because Buffett is seen as such a stable, reliable character, and he previously had gone on record as saying he wouldn’t sell off his airline stocks. However, saying that this shows he has lost his touch perhaps only shows a lack of knowledge about the extent of his experience.
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In the 1980s, Buffett invested in airline stocks, and lost money, subsequently swearing he would never invest in airlines again. However, in recent years the industry underwent significant consolidation and rationalization in investment terms, meaning he was persuaded to re-invest. Nobody could have predicted the impact COVID-19 would have on the world, let alone the aviation industry. Under the circumstances, his decision might not only be the right one, but it might be informed by his experience, an experience that short-term analyses overlook.
Holding onto cash
The explanation for Buffett’s reticence to invest during the selloff can be understood as a decision to wait for the right moment. And, finally, in early July, Berkshire Hathaway invested $10 billion in natural gas infrastructure assets from Dominion Energy (NYSE: D). Those who know Buffett know that this is very much his staple type of investment, showing that he is acting in a very typical way, investing American and investing in what he views as safe, stable, and long-term.
It should be noted that even with this mammoth investment, Berkshire Hathaway still has some $127 billion at their disposal in cash and equivalents according to data from their Q1 2020 financial reports. So whilst we can’t expect Buffett to go on a spending spree, we can hope for a few more significant investments of this nature.
Still of value
So as to the question of whether Berkshire Hathaway is still a good investment, it is perhaps worth looking at the wider picture. It is a company with investments in a variety of highly stable sectors, hundreds of thousands of employees and key management figures who have been guided by Buffett’s highly regarded investment and management philosophy. In that sense, Buffett has created something greater than himself, a vehicle that will propel his legacy into the future. And that legacy has always been a safe bet.
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