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$ 49 billion loss: Buffett's strategy no longer works

Warren Buffet and the crisis of 2020

The legendary investor Warren Buffett reported on the losses of his holding Berkshire Hathaway in addition to $ 49 billion. the company suffered such serious losses, Buffett said that his business is likely to face even bigger problems in the near future and in many ways they will be associated with the actions of the US Federal Reserve. Because the financial pillow of $ 130 billion is depreciating, and he has no good options for buying.

Is it possible to say that the era of Warren Buffett has come to an end and his investment strategy is no longer working? Let's take a look at the latest things in his company and make a decision.

 

Net loss

Loss of Buffett's portfolio

The total loss of $ 49 billion seems astronomical, but for Berkshire and Hathaw it’s close not the end, but rather the working moment. Warren Buffett honestly reported on them, explaining that most of these losses are associated with the collapse of the stock market , because they hold most of the capital in shares.

This is what Buffett's portfolio looked like before the stock market crashed:

Warren Buffett's package before the stock market crash March 12

[ 19459008] 83% falls on the TOP-10 companies and the rest, so to speak, on trifles. But even out of this top ten with honor, only Apple came through the market decline that began in February. But the rest of Buffett's favorites fell significantly, and this resulted in the current loss of Berkshire Hathaway.

In the future, the minus on Buffett's portfolio may continue to grow, provided that the stock market goes in search of a new bottom. However, the billionaire has not yet expressed his intention to urgently exit the market. And the point here, it seems to us, is not that he is waiting for the restoration of the value of the shares. After all, his actions largely say the opposite, rather, he simply does not need such steps and remains true to his strategy. About it further.

Lost faith

Warren Buffett
As you know, Buffett’s strategy is to buy a business for a long time and he is not going to part with the acquired shares.

But if things are going really badly, the legendary investor may give up on his own principles and therefore Berkshire Hathaway sold all his shares in the airlines, which sent them to a steep peak.

The official reason - Buffett has lost faith in this type of business. In his understanding, civil aviation was in an extremely difficult situation in the light of the current financial crisis. After we safely forget about COVID-19, Warren sees no reason to restore demand for air travel. After all, people will be afraid to travel and many simply do not have money for it. Because now they are left without work and are forced to spend their savings if they were, or live on credit, which is even worse.

Earlier we said that the airline will face a serious shake-up, and you can try to earn money by buying their shares cheaper. After all, there is no alternative to motor transport, and it is unlikely that tomorrow scientists will invent a more convenient and faster mode of transport to travel between continents. Why did Warren Buffett get so much pessimism?

In our understanding, Buffett fears a repeat of the situation with Berkshire Hathaway, because today we know her as one of the leading holdings. But at the time Warren Buffett began to buy her shares, Berkshire Hathaway was engaged in the production of textiles, and Buffett believed that this industry was the future.

But when a controlling stake was in his hands, it became obvious that Berkshire Hathaway had a fiasco as a textile company, after which Buffett began to transform it into other types of business.

☝️
That is why Warren Buffett always answers - Berkshire Hathaway to the question about the most unsuccessful purchase.

The shares of the airlines were sold, not in order to take part of the money and somehow compensate for the loss of $ 49 billion, everything is fine with Buffett finances and we will discuss this in the next section. Most likely, he expects a wave of bankruptcies in this industry, so he does not want to repeat the mistake made when purchasing Berkshire Hathaway, so that later they would not have to save these companies either.

And we do not exclude the possibility that after those who can survive the troubled times are determined and demand begins to recover, Buffett will return to this market. But not earlier, because he is not a fan of risky investments and always keeps an extra ten billion dollars under his pillow to buy a new profitable business.

Fed vs. Buffett

Quantitative easing 2020

Warren Buffett - - - of the American dream and in all respects supports US policy, but now his business and the actions of the Federal Reserve have become opponents.

First, Buffett always preferred to hold a lot of cash on hand in case of a good time to buy. Berkshire Hathaway approached this crisis with a stock of more than $ 130 billion. But due to the active work of the printing press, the rate of depreciation of this money has significantly accelerated.

Secondly, the Fed's policy of unlimited quantitative easing leads to the fact that the market simply does not have a good price to buy. Companies that would have filed for bankruptcy at any other time and could have been bought for a penny now receive state aid without any problems and continue to exist.

Thirdly, the Fed is also indirectly to blame for this, as they fill the markets with liquidity, investors have lost caution and are buying everything up, regardless of the level of risk. Therefore, there are too many companies on the market that have not yet managed to prove their long-term survival, but the value of their shares has soared to the level at which Warren Buffet is not ready to invest.

Buffett's Strategy for Crisis 2020
 

It seems that the Fed put an end to Warren Buffett's investment strategy and would it be time for him to give up the position of the best investor in the world? But we would not write off the old man, because he did not go into the technology sector for a long time, and now Apple shares comprise 31% of his portfolio.

We won’t be surprised if during the current crisis he takes one more step towards progress and opens up new markets for himself. We are not so optimistic as to expect from Buffett purchases of bitcoin or at least a share in cryptocurrency exchange . But they are sure that he has a plan on how to make money during the current crisis and there is $ 130 billion to realize his plan.

Read also:

Crisis, virus - business: who the mess works for

Near collapse of the dollar: scarecrow financiers or reality

Why is the crisis of 2020 not like all the previous ones?

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