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Monday, May 4, 2020
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Stocks only for the long run
Warren Buffett sounds cautious.
At the Berkshire Hathaway (BRK-A, BRK-B) annual shareholders meeting on Saturday, Buffett began the proceedings by offering a roughly 75-minute overview of why American history offers reasons for investor optimism.
This is a familiar theme for Buffett. In the last several years he has written and spoken extensively about the “American tailwind” that investors can ride by investing in the stock market. And while Buffett reiterated this long-term optimism on Saturday, there was a subtle change in his message.
And investors should take note.
“I don’t know, and perhaps with a bias, I don’t believe anybody knows what the market is going to do tomorrow, next week, next month, next year,” Buffett said Saturday. “You can bet on America but you have to be careful about how you bet. Simply because markets can do anything... Nobody knows what’s going to happen tomorrow.”
On the surface, these comments appear benign. “Warren Buffett says investors should think long-term” isn’t much of a headline.
But Buffett’s outline isn’t that investors should think long-term right now, but that they must think long-term. In other words, there aren’t many reasons Buffett can find to see the current situation as anything but challenging. And considering Buffett’s long held bullish views, this is as bearish a take as we’re liable to ever hear from Buffett.
And Buffett’s recent actions speak louder than any of the words uttered during Saturday’s meeting.
The biggest headline was Buffett’s confirmation that Berkshire sold its entire stake in the country’s four largest airlines — American (AAL), United (UAL), Delta (DAL) and Southwest (LUV). As Buffett outlined on Saturday, in his view the bet was simple: pay about $8 billion for these holdings to get back about $1 billion earnings.
The coronavirus pandemic and associated global economic shutdown changed this picture considerably. Buffett went so far as to tell the airlines: “I wish them luck.”
Berkshire was also restrained in repurchasing its own stock during the quarter, spending just $1.6 billion buying back its own shares and conducting no repurchases after Mach 10. Morningstar analyst Gregg Warren said he was “extremely disappointed” with this decision.
“While we can certainly understand the need to be cautious with investments and acquisitions in the near term...the company has a good investment opportunity in its own common stock and management should really be called out for failing to take more aggressive action during the first quarter,” Warren added.