Investment Company Berkshire Hathaway suffered a record first quarter loss of a staggering $50Billion (£40Billion) on its investments. Much reported but after the market slump, investment guru Warren Buffett sold his airline stocks – really it is after the event and he may have held in there but what is more confusing is that the company is not hoovering-up ‘great businesses’ at give-away prices.
Announcing that he was wrong to invest in the US airline industry, Mr Buffett said that the world has changed because of the Coronavirus. Starting in 2016, Berkshire Hathaway had amassed an 11% stake in Delta Air Lines, 10% in American Airlines, 10% in Southwest Airlines and 9% in United Airlines.
Admittedly, few industries have been affected more than the airline industry with the virtual complete cancellation of all international flights. Holidays have been cancelled and business travel too has come to a complete stop with any meetings now tending to be conducted online. Staff have been furloughed and there is talk of mass redundancies. We seem to be at the peak of investors’ negative sentiment towards the industry and share prices reflect this, being down anything from 50-75%.
Whilst all investment experts will have a view on the airline industry, it is the timing of the decision which we find a little strange. We would not question an investor of the experience of Mr Buffett, but to sell these colossal stakes in these businesses at such a time with very depressed prices, he must be absolutely convinced that the businesses are no longer worthy of his investment and that he can do better with the equivalent funds elsewhere. He may also be factoring in the strength of the US Dollar and considering international opportunities instead where currencies offer better value.
Whilst we do not necessarily have a convincing urge to buy these businesses ourselves (particularly with the currency considerations) we suspect that we would be tempted to remain patient in the current market, even if the desire to exit the sector was the longer-term objective. As lockdowns, travel restrictions and general disruptions are eased over the coming months, global sentiment towards the industry and markets will improve, which we suspect will result in rising share prices and eventually a more favourable outcome for investors.
Of course, these differences of opinions are what make markets, one side wishing to sell (through lost confidence in the business or need for funds) and the other side wanting to buy (as they see an opportunity). We shall monitor developments with interest.