Buffett Explains Why He Didn’t Do A Big Deal During The Pandemic Crisis

Berkshire Hathaway Investments

Warren Buffett came under fire for not getting out his elephant gun to make a big purchase during the market lows during the first half of 2020. Here’s how he explained it at the Berkshire Annual Meeting.

Risk Management

Buffett manages risk at Berkshire. He pointed out that the U.S. response to the pandemic was managed very well. Importantly though, it didn’t have to be. He saw a critical point as the intervention of the Fed on March 23rd 2020. Before that, companies were starting to pick up the phone and call Berkshire for help, after the Fed’s actions, help wasn’t needed. Then the fiscal reaction with the CARES Act was favorable too.

Buffett didn’t view this outcome as a certainty and viewed worse outcomes as possible. As much as he enjoys making money, he views it as more important that he doesn’t lose it and the range of potential outcomes early in COVID-19 was one reason he was cautious.

Airline Risk

The other thing that Buffett was concerned about was backstopping certain investments, specifically airlines. One major move that Berkshire made during 2020 was selling down airline stakes. Buffett explained that if Berkshire remained a major investor, then the airlines may have been less likely to get government support because the airlines could have looked to Berkshire for findings.

SPACs

Berkshire also noted that the rise in SPAC activity is making it harder to source deals, for now. This is a trend that Buffett has seen in the past, but now is particularly pronounced given the number of SPACs seeking deals on a time-limited basis. Buffett’s partner, Charlie Munger, called this “fee driven money” because the deals may be done for fees rather than because they are good deals. Buffett shared that he still had funds in the tens of billions in Treasury bills that he’d like to put to work under better conditions.

Still, it appears implicitly that Buffett does not view the COVID-19 pandemic as Berkshire’s finest hour. He points out that Berkshire did repurchase substantial shares over 2020. It also seems that there were structural reasons from the actions of the Fed in providing massive funding, and the growth of SPACs, in chasing deals, that have cut deal flow to Berkshire over recent months.

Simon is the author of Digital Wealth and Strategic Project Portfolio Management. He has previously served as Chief Investment Officer at Moola and FutureAdvisor, both are consumer investment startups that were subsequently acquired by S&P 500 firms. He is a CFA Charterholder and educated at Oxford and Northwestern. Articles are informational only, not investment advice.

Source: Buffett Explains Why He Didn’t Do A Big Deal During The Pandemic Crisis

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Warren Buffett is feeling much better since “the economy went off a cliff” last March. He admits he might be even happier if he had used that opportunity to invest some of the $145 billion of cash Berkshire Hathaway Inc. has been hoarding.

Buffett Bails

Warren Buffett now says he regrets not buying up more unloved assets during the pandemic the way the value investor famously has in past crises.Berkshire revealed that it sold stocks again last quarter, bringing the total net value of equities it has dumped since the outset of the Covid-19 pandemic to more than $12 billion.

The benchmark S&P 500 index returned about 26% over that span — double what Berkshire shares did. And as Apple Inc. gained 80%, becoming a $2 trillion company, Berkshire sold some of its Apple shares. That was a mistake, Buffett said, to which his longtime business partner Charlie Munger resoundingly (if half-jokingly) declared, “Yes!” The two say they’ve never had a fight in their sixty-plus years working together, but in that moment their cute claim seemed slightly less plausible.

“Looking back, definitely we could’ve done things better,” Buffett said, because many businesses sprang back astonishingly fast. That was thanks to the Federal Reserve’s extraordinary actions early on, which Buffett praised, and the relief checks that went to Americans, he told virtual listeners of his company’s annual shareholder meeting Saturday. Investing is “not as easy at it sounds,” he added, words of caution to the new generation of investors using commission-free apps such as Robinhood that encourage a casino-like trading experience. Buffett, who at 90 is still a voracious reader of companies’ annual reports, is looking forward to reading Robinhood Markets Inc.’s document when it files to go public.

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