It’s always interesting to analyze the investing activity of leading fund managers and financial icons during periods of increased volatility. As retail investors and traders, we can learn a lot from the moves that these titans of finance make. One such famous investor that a lot of people look up to is Warren Buffett. The iconic billionaire value investor has laid pretty low during the market downturn but has also made a few moves that we might be able to learn from.
While most retail investors were panicking the 89-year-old remained calm and is likely now looking ahead for value in the market as earnings start to show the negative impacts of the shutdown. Although it’s hard to compare your own investing accounts to the massive investment portfolio of Berkshire Hathaway, that doesn’t mean you can’t learn something from Warren’s latest actions.
Let’s take a look at Warren Buffet’s activity during the coronavirus crash to see if we can pick up on any useful investing tactics from the legendary billionaire.
Sold Shares of Delta and Southwest
One of the big moves that Warren Buffett made over the last several weeks was selling around $390 million worth of Delta NYSE: DAL and Southwest NYSE: LUV shares on April 1st and 2nd. This doesn’t come as a big surprise since the airline industry is taking the full force of the coronavirus pandemic. Demand for air travel has dropped off of a cliff due to travel restrictions. While governments work hard to contain the spread of the virus, the airline companies are facing massive revenue hits. Warren Buffett built up several large positions in the US airline industry over the years but took a substantial estimated hit of $5 billion dollars as these stocks plunged in price.
It’s worth noting that Berkshire Hathaway still owns a lot of shares in both of these airline companies, but his reduced exposure to the industry might mean that he is predicting a rocky road to recovery for their businesses. Keep an eye on Berkshire Hathaway’s stakes in the major airline companies going forward to get some insight into just how bad things might get for the industry as a whole.
Sold Bank of New York Mellon Shares
Another stock sale that Warren Buffett executed recently was the sale of 860,000 shares of Bank of New York Mellon NYSE: BK. You might initially think that means Warren is bearish on the banking industry, but that’s not exactly the case. In fact, Berkshire Hathaway still owns over $3 billion dollars of shares in BK.
Note that Mr. Buffet didn’t liquidate his entire position, but rather brought Berkshire Hathaway’s ownership stake in Bank of New York Mellon down to 9.96%. This is worth mentioning because there are specific SEC regulations that limit the ability of 10% owners of a company to make ongoing trades in a stock. Basically, if you own more than a 10% stake in a company in the banking industry, you will face strict regulations like capital requirements and oversight from the Federal Reserve. With the current uncertainty in the market, it seems that Buffett recognizes the value of being able to trade freely and without increased regulatory scrutiny.
Maintained a Huge Cash Position
One of the interesting things about Warren’s activity during the coronavirus market meltdown is that he really hasn’t been very active in the market. Berkshire Hathaway was sitting on roughly $128 billion in cash on their balance sheet at the end of 2019 and has not made any significant purchases this year, which tells us that he could be gearing up for some big investments in the near future.
This is a guy who has a reputation for finding bargains in even the most difficult market conditions, so it will be fascinating to see what he picks up for Berkshire Hathaway in the coming weeks with all of that cash. Also, the fact that he hasn’t liquidated massive amounts of his equity holdings might be a sign that the market recovery will be stronger than most are anticipating. Make sure you read the upcoming 13-F form for Berkshire Hathaway when it is released to get even more insight into the moves that Warren Buffett is making.
You might be looking at these stock sales and the large cash position on Berkshire Hathaway’s balance sheetand think that Warren Buffett is bearish on the overall market. The truth is that Berkshire still has an enormous equity portfolio, which means it’s hard to draw that conclusion. It’s much more likely that Warren is simply reducing his exposure to certain industries that are most vulnerable to the impacts of the coronavirus and selling shares for regulatory reasons. Remember to take his famous quote “Be fearful when others are greedy. Be greedy when others are fearful” to heart, especially in these market conditions.
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