He lost a pile on the airlines and even decided to realize those losses.
He lost a pile on that petroleum company that I forgot the name of, but which crashed and burned recently due to oil prices plunging.
He hesitated a long time with tech stocks and lost a lot of money in the last decade due to opportunity cost. His only good bet in that area was Apple, and admittedly that paid off nicely, but even his big stake doesn't compensate for missing out on basically all other tech stocks. Especially since the size of his Apple investment suggests that he played a significant part in raising the Apple stock value, which means that he probably can't pull that out again without depressing the stock price.
Bottom line: I think Warren Buffett is overrated. He fails, just like anyone else.
Berkshire financed Occidental Petroleum's acquisition of Anadarco by giving $10 bn in cash. In return, BRK received:
- $10bn wort of perpetual cumulative preferred shares with a coupon of 8% (e.g. $800m a year). OXY can choose to pay in common shares instead of cash, but in this case Berkshire will get a discount. They have done this for the most recent quarterly dividend payment, since OXY's share price is so depressed, the $200m add up to a sizable position in OXY. If OXY doesn't pay the dividend, the coupon rises to 9% and has to be paid latter. OXY can redeem these shares at 105% of the nominal value in about 10 years.
- warrants to purchase 80m common shares until 2030, the strike price is $62.5, so this option is far out of the money. But given the extremely long duration (11 years) it is quite possible that those warrants become extremely valuable over time.
Let's wait for a few years and see how Berkshire does on the OXY trade.
Maybe in the past there was lots of deep-value out there, but now we have analysts working every strategy.
Or squeeze a percent or two of efficiency by taking companies private under 1 umbrella. On average it works out, but it doesn't take many mistakes to sour it.
The source of Berkshire's strong performance was a combination of very good investments (buying American express in 1964) and insurance float, a great credit facility with negative interest rates.
Given the size of the private businesses Berkshire owns, it is quite naive to assess the firm purely on stock-picking performance of Buffett. The operating results really matter, producing $25bn+ of operating profits per year isn't too shabby.
I think its great that he doesn't invest that much into tech and is very public about it. It influences other people to not invest in every little thing that is popular if they don't understand the business mechanics behind it.
He's also overrated because of all the insider trading he engages in....he would be a lot poorer if the SEC had the resources/will to investigate his moves.
I don't think you know Buffetts track record.
His track record and methods are an open book. And have never included insider trading.
Selling at a loss is hard, Kudos to Berkshire for understanding that the world has changed and acting accordingly, most investors are going to try to sit this out and might well lose everything in the process.
I suppose that few people predicted that this crisis would hit America so hard
Also, I believe BRK has lower risk tolerance than most people think. Listen to the latest annual shareholders meeting, he says that quite explicitly.
But he might be onto something. Which means, does he know some insider knowledge that we don’t?
The airlines industry is practically about tourism. Yes, there is business travel, but tourism is an important part of it. But, there is unlikely to be any significant tourism in the years ahead, until some kind of vaccine comes out.
So, does he know about some insider knowledge here. He doesn’t take strategic positions like this on a whim, and he clearly operates on fringe insider knowledge.
Maybe his buddies are telling him, that here will likely never be a vaccine? Now, that is an interesting and possibly tradable thesis. Short the airline companies.
More likely, he’s just thinking about the same facts differently than others. Buffett tends to be quite cautious with regards to potential catastrophic failures, so he’s probably more focused on all of the ways that airlines, banks, etc. might lose a ton of money rather than worrying about missing out on the recovery.
As an analogy, public health experts suggest we should do away with shaking hands in the future. It may well be that social norms such as travelling, shaking hands, etc will permanently change.
This means that AirBnB is dead. And all those people that bought multiple houses, with multiple mortgages, which they can no longer service, are going to go bankrupt. Good riddance.
You can’t short AirBnB, but what other companies can you short? The loan processing companies? Zillow? BofA?
Avis Budget, a car rental company, does 2/3 of their rentals at airports and they carry a huge amount of debt. The car rental space is extremely competitive as it is and new ride sharing offers don't make things easier. Hertz is already very close to bankruptcy
[0] Berkshire Hathaway Chairman's Letter (2001)
He just dumped most of his airline holdings, after losing some $5 billion dollars.
It seems he might be going into cash, and sitting things out, until a true correction hits, and then he’ll go back in and pick up companies for pennies on the dollar.