Monday 4 May 2020

Buffett admits a mistake with airline stocks

There's been a lot of speculation about the moves that Berkshire Hathaway has recently made with its airline stock holdings. In early April, Berkshire sold substantial amounts of its holdings in Delta Air Lines (NYSE:DAL) and Southwest Airlines (NYSE:LUV), with disclosures necessary because of Berkshire's having held more than 10% of the two airlines' outstanding shares. At the time, it seemed as though Buffett might simply be reducing its positions below 10% to avoid future complications.

However, Buffett reported selling a total of $6.5 billion in stock during April, far more than the Delta and Southwest sales that had been reported and also including shares of United Airlines Holdings (NASDAQ:UAL) and American Airlines Group (NASDAQ:AAL) as well. Questioned later, the Berkshire CEO said that the company sold off its entire positions in the four airlines. As he explained it, he "just decided I made a mistake." He had initially figured that investing $7 billion to $8 billion to buy 10% stakes in the four biggest U.S. airlines would give him about $1 billion in underlying earnings, which seemed like a reasonable value. However, Buffett said, "It turned out I was wrong about the business."

Buffett didn't blame airline CEOs, who managed their companies well and did a lot of things right. However, the Berkshire leader no longer feels comfortable that airlines will ever recover to their pre-coronavirus levels, and even two to three years from now, it's possible that not nearly as many people will be flying. Unfortunately, even if airlines recover 70% to 80% of their pre-crisis passenger loads, they'll still have far too many planes. With airlines selling stock to raise capital, upside is limited. Buffett concluded, "The world changed for airlines, and we wish them well."

https://www.fool.com/investing/2020/05/02/what-warren-buffett-said-at-berkshires-2020-shareh.aspx





Related article:


Warren Buffett Adds to Delta Investment as Airlines Plunge to Value Territory

https://myinvestingnotes.blogspot.com/2020/03/warren-buffett-adds-to-delta-investment.html



Berkshire's Top Equity Holdings

Berkshire still holds3 over $180 billion in the common stock of many publicly-traded companies. Approximately 69% of the aggregate fair value was concentrated in these five companies:
  • American Express Co. (AXP): $13.0 billion
  • Apple Inc. (AAPL): $63.8 billion
  • Bank of America Corp. (BAC): $20.2 billion
  • The Coca-Cola Company (KO): $17.7 billion
  • Wells Fargo & Co. (WFC): $9.9 billion

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