Yahoo Finance ‘World has changed’: Buffett’s $6 billion investment dump
Billionaire investing mogul and Berkshire Hathaway CEO Warren Buffett has dumped all four major US airlines after purchasing a 10 per cent stake in them prior to coronavirus.
During a virtual address to shareholders on Sunday, Buffett revealed that the company had sold its entire interest in the airlines, worth a minimum of US$4 billion (AU$6.3 billion), and called the company’s initial investment an “understandable mistake”.
“The world changed for airlines,” Buffett said.
“It turned out that I was wrong about that business because of something that was not in any way the fault of four excellent CEOs,” Buffett said of the impact of coronavirus on air travel.
Buffett added that the companies were well-managed, but the future of airlines was less clear.
“I don’t know whether two or three years from now that as many people will fly as many passenger miles as they did last year,” the CEO told shareholders.
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“They may and they may not. But the future is much less clear to me, on how the businesses will turn out, through absolutely no fault of their airlines themselves.”
The airlines will need to borrow billions to recover, Buffett added.
“The four companies are each going to borrow an average of at least US$10 or US$12 billion each,” he said. “Well, you’re going to have to pay that back at some stage – you’re $10 or $12 billion worse off if that happens.”
And if business returns at less than 100 per cent capacity, airlines will need to deal with the excess of aircrafts.
“You’ve got too many planes, and it didn’t look that way when the orders were placed a few months ago when arrangements were made,” Buffett said.
“I wish them well.”
Berkshire Hathaway took a US$50 billion (AU$77 billion) hit this quarter, with Buffett indicating coronavirus had a large role to play.
“The virus will cost Berkshire money,” he said.
However, Berkshire managers told shareholders this quarterly result was “meaningless”.
“The amount of investment gains/losses in any given quarter is usually meaningless and delivers figures for net earnings per share that can be extremely misleading to investors who have little or no knowledge of accounting rules,” they stated.
What’s next for stocks?
The billionaire, dubbed the Oracle of Omaha, doesn’t know what’s in store for the global share market.
“I don’t know — and perhaps with a bias — I don’t believe anybody knows what the market is going to do tomorrow,” Buffett said.
“I know America is going to move forward over time,” he said. “But, I don’t know for sure — and we learned this on September 10th, 2001, and we learned this a few months ago in terms of the virus — anything can happen in terms of markets.”
Buffett told investors to “never, ever bet against America,” as historically the nation has persisted through difficult times.
However, he acknowledged the US was “far” from where it should be, and advised shareholders to be cautious.
“When I bought my first stock when I was eleven, I caught a huge, huge, huge tailwind in America,” he said. “But, it wasn’t going to blow in my direction every single day, and you don’t know what’s going to happen tomorrow.”
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