Warren Buffett dumps airlines, Berkshire posts biggest quarterly loss

Is Warren Buffett losing his touch? Stock in Berkshire Hathaway, the legendary company founded by the Oracle of Omaha, is down 22% year-to-date, compared to a 12% loss for the S&P 500. It’s the company’s worst performance against the benchmark index in a decade.

On top of that, earnings released over the weekend revealed a near $50 billion loss in the first quarter; the company’s biggest ever.

According to Berkshire Hathaway, up until the coronavirus pandemic hit the US proper many of its businesses were showing year-on-year revenue and earnings growth, but that quickly changed in April:

“As efforts to contain the spread of the COVID-19 pandemic accelerated in the second half of March and continued through April, most of our businesses were negatively affected, with the effects to date ranging from relatively minor to severe,” the company said in its regulatory filing.

Chart: Berkshire Hathaway (blue) performance versus the S&P 500 cash market (purple) since January 1st 2020, Marketsx.

Turbulence for airline stocks hits Berkshire earnings

Buffett announced during the company’s AGM that he had sold off his stakes in American Airlines, Delta Airlines, Southwest Airlines and United Airlines. “Our airline position was a mistake,” Buffett told investors during the virtual gathering, after disclosing that he sold the airline stocks for $6.1 billion, much less than he paid for them.

The news sent AAL down 7.7%, DAL down 6.4%, LUV down 5.7%, and UAL down 5.1% on Monday. Buffett put the blame for the sale squarely on the pandemic, stating that he believes the companies are well-managed, but that “the airline business… changed in a very major way” and that the future was much less certain.

Even if passenger volumes do return to normal within the next few years, airlines could  struggle with the repercussion of taking billions of dollars in loans as part of the US government’s bailout package. As well as repaying these, the Treasury now has warrants to acquire their shares at a discount if it chooses to exercise the right.

Why isn’t Berkshire Hathaway snapping up cheap stocks?

Berkshire had a record $137 billion in cash at the end of the first quarter. The company’s shareholders have been wondering why the Oracle of Omaha hasn’t taken advantage of the huge drop in stock prices on the back of the COVID-19 pandemic. By March 23^rd the S&P 500 was down 35% from the February 19^th record.

Buying while others are selling is a classic Buffett move, after all. One of his (many) famous suggestions is to be greedy while others are fearful. He used the financial crisis to snap up shares in major US banks like Bank of America and Goldman Sachs for cheap.

But currently he doesn’t “see anything that attractive”. He told investors during the AGM that Berkshire is “willing to do something very big” should the right opportunity come along.

“I mean you could come to me on Monday morning with something that involved $30, or $40 billion or $50 billion,” Buffett said. “And if we really like what we are seeing, we would do it.”

Three ways to trade like Warren Buffet with Marketsx

Looking to trade like the Oracle of Omaha? Marketsx gives you plenty of options. You can take a position on CFDs for Berkshire Hathaway stock or some of Buffett’s favourite companies, like Apple, Bank of America, and Coca-Cola individually.

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