Dated: May 15, 2020
I want to state at the very outset that I have the greatest respect and admiration for Warren Buffett, both for his legendary investment acumen and his humanitarianism. That is why his actions thirteen days ago were so chocking. During the Berkshire Hathaway annual meeting on May 2, 2020, he made the announcement that Berkshire had dumped all its shares in the airline industry, including American, Southwest, Delta, and United. Buffett’s uncharacteristic move caught me and many of the Berkshire shareholders by surprise because this seems to run against his famous strategy of buying something and then keeping it forever as a long-term investment. Yet almost in the same breath, he uttered his other famous saying that one should never bet against America. His action seems to imply that he has no confidence that the economy will bounce back anytime soon and that the airline industry will be depressed for an extended period. He appears to have been badly shaken by the COVID-19 pandemic, which he described as something he had never seen before in his thirty-nine years in investment. The price of Berkshire’s airlines’ stocks has already sustained very heavy losses within a relatively short holding period. So why was he in such a hurry to dump them? I, for one, think these stocks are good buys at these depressed prices. It is my belief that the pandemic scare will be over fairly soon, and the economy will be humming once again and the stock prices for the airlines will recover in a matter of months, not years. Could I be right and he be wrong? Furthermore, Berkshire is sitting on a mountain of cash, which Buffett said would not be deployed anytime soon because he is not buying. Apparently, he is harboring the notion that the American economy will remain depressed for a long time or that he has no inkling as to what paths the economy will take in the foreseeable future. If I had a lot of cash, I would be buying up all the depressed stocks in anticipation of a rather quick rebound—at least until the end of 2021—when I expect to unload the majority of my positions in anticipation of another period of severe recession or even depression, as I discussed in my previous blog on May 14, 2020.
Despite Warren Buffett’s long history of success in investments, some of his more recent acquisitions seem to not have panned out. The old adage that “past success is no guarantee for future results” is eminently applicable in this case, notwithstanding Buffett’s legendary success in stock picking. The cyclical nature of the cosmic energy precludes any individual’s good luck from lasting forever. Warren Buffett is almost ninety years old after all. His longtime partner Munger is ninety-six. Health, stamina, and intellectual prowess can dwindle with age. Coincidentally, aging factor aside, Buffett’s luck will also reach a critical turning point for the worst around the beginning of February 2022. Although I sincerely hope he will stay healthy and robust, I would not follow in his footsteps too closely. One of Buffett’s famous admonitions, “You don’t want to bet against America,” has been tried and true during the past several decades, for following every economic downturn full recovery has been the norm. Conversely, if you are the one managing your own investment portfolio just before Black Monday in 1929, and if you knew what was coming, what would you have done? The recent market crash in February and March this year took place with lightning speed, catching many a major hedge fund manager by surprise, like deer on the highway frozen in place by the bright headlights of oncoming traffic. I, for one, would try to have fun surfing the gigantic wave of prosperity in the stock market, only to bail by helicopter before the wave crashes, around February 2022.