What Warren Buffett Is Doing

Warren Buffett is doing something I never thought he would do. He is deliberately holding on to his cash. He is running scared and feels that $137 billion in cash might not be enough.

We are in new ground, and there are no rules for what is going on. Warren Buffett has always been a reliable and trusted voice in times of financial unrest and, I believe he still is. Here are some of his comments to consider that come from the Berkshire Hathaway annual meeting and interviews he gave over the weekend and early in the week.

• He indicated that protecting his company if things get worse is a major concern of his.
• He said that Berkshire Hathaway’s (BRK) cash hoard of $137 billion might not be that huge when you think about worst-case possibilities.
• Preparing for a single problem is not the focus. The focus needs to be to prepare for the problems that sometimes would create their own momentum, and that is an unknown that needs to be protected against.
• However, he said that he would have no hesitation in investing some of the $137 billion cash if the right opportunity presented itself.
• He is certainly decisive. He was enamored with airline stocks acquiring as much as he could buy of the top four airlines without crossing a line of added SEC review. At the BRK annual meeting on May 2, Buffett said the company sold its entire stakes in American Airlines, Delta Airlines, Southwest Airlines and United Airlines. Last year these four companies had a value of about $9 billion out of a total portfolio of about $250 billion. As of now, that $250 billion portfolio is worth about $200 billion which incorporates the losses the company sustained during the last two months. He indicated that the facts changed from when he acquired the airline shares and felt that these companies were in different positions at this time and for the foreseeable future.
• While the emphasis is on the asset values, which it should be for an investment holding company, the operating earnings the first quarter were $5.87 billion and this was up from last year’s first quarter. That’s a lot of cash coming in on a regular basis.
• 40,000 people attended the 2019 annual meeting. This year the video meeting was run by Buffett and one other person supported by a few employees.
• Buffett is still bullish on America, just not the airlines. He said to never bet against America and he is optimistic about the long term future.
• He advised buying S&P 500 index funds and not individual stocks. He reiterated this when asked about BRK’s performance compared to the S&P 500.
• However, BRK repurchased about $1.7 billion of its stock during the first quarter because he felt the company was undervalued. BTW the market cap of BRK as of yesterday afternoon was about $425 billion.
• He advised against borrowing to buy stocks which increases risk.
• He lauded Federal Reserve Chairman Jay Powell for acting with unprecedented speed and determination to prop up the economy. He indicated he did not know the long term consequences of what was done, but we do know the consequences of doing nothing and we owe the Fed a great thank you.

There is always a lot to learn when Warren Buffett speaks and this year was no exception. Things are different right now, but the basic investment principles haven’t changed. He said he knows things will get better, just not when.

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