Berkshire Hathaway had their annual shareholders meeting yesterday. This one was different than past ones, both based on the current economic uncertainty, and given the lack of people attending due to the current pandemic.
A couple of weeks ago we learned that Berkshire Hathaway had sold many of the airline stocks they held, and yesterday Warren Buffett provided some more details on that decision.
Berkshire Hathaway sold all airline stocks
Prior to the pandemic, Berkshire Hathaway owned over $4 billion worth of of stocks with American, Delta, Southwest, and United. In recent weeks SEC filings suggested that the company sold airline stocks, though we’ve now officially learned that Berkshire Hathaway has sold all airline stocks, across all companies.
I think it’s interesting to take a look at Buffett’s explanation of the situation, not necessarily because of the implications on stocks, but rather because I find it interesting to hear his thoughts on airline recovery:
“The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way. I don’t know if Americans have now changed their habits or will change their habits because of the extended period.
I think there are certain industries, and unfortunately, I think that the airline industry, among others, that are really hurt by a forced shutdown by events that are far beyond our control.
When we sell something, very often it’s going to be our entire stake. We don’t trim positions. That’s just not the way we approach it any more than if we buy 100% of a business. We’re going to sell it down to 90% or 80%. If we like a business, we’re going to buy as much of it as we can and keep it as long as we can. And when we change our mind we don’t take half measures.”
Berkshire Hathaway only took interest in airlines in 2016
Interestingly it’s only in the past several years that Berkshire Hathaway has invested in airlines.
Before 2016, Buffett was strongly opposed to investing in airlines. During a shareholders meeting in 2007 he even said “if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”
But in 2016 the company took a different approach, which Buffett regrets in retrospect, and calls his own mistake:
“When we bought, we were getting an attractive amount for our money when investing across the airlines. It turned out I was wrong about that business because of something that was not in any way the fault of four excellent CEOs. Believe me. No joy of being a CEO of an airline.
I don’t know that three, four years from now people will fly as many passenger miles as they did last year. You’ve got too many planes.”
Bottom line
Berkshire Hathaway has in the past few weeks sold the billions of dollars of stocks they had in airlines, and now Buffett has provided an explanation of why.
Obviously this is an uncertain time in the industry, but the interesting part is that Berkshire Hathaway sold the stocks after massive drops, right around where they are now. It’s not like they sold them when they first started going down after COVID-19 become known.
Indeed, I think we’re all curious to see what an airline recovery looks like…
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