Warren Buffett’s Big Airline Exit
Picture this: in Q1 of 2020, Berkshire’s legendary chief suddenly announces that his conglomerate has off‑loaded all airline shares it held, snapping a deal worth just over US$4 billion (S$5.7 billion) by the end of 2019.
From “Hold” to “Sold” in Record Time
- Just two months ago, in February, Buffett had been all‑in: he was confident he’d never sell his Delta and Southwest holdings.
- Later that month, he began trimming those positions—selling back a chunk of Delta and Southwest shares in mid‑March.
- Fast forward to the latest Berkshire briefing: he’s admitted that his “investment in airlines, again, was a mistake” and that he’s pulling out all of them.
Why the Turnabout?
- Some analysts think the liquidity crunch in the aviation sector weighed on Buffett—ports, crew, regulatory hurdles, and the pandemic were pressing hard.
- Others point to rising costs & falling passenger numbers; the cost‑benefit equation no longer looked rosy.
- Still, a lot of talk has gone around the idea that Buffett decided he’d made a “mistake” and is now cutting losses before they snowball.
Key Takeaways from the Berkshire Meeting
- Buffett doesn’t just wipe out half a billion in shares; he divests the entire airline portfolio.
- He’s publicly acknowledged that there was a wrong call, making it feel almost like a confession to the market.
- The move reminds us that even the most seasoned investors can pivot dramatically when the market narrative shifts.
What’s Next?
With the airlines off the books, Berkshire is likely to reallocate those capital gains into sectors that promise steadier growth—think tech, consumer staples, or even “nuggets” of newer EV or renewable initiatives. It’ll be fascinating to see where the money goes next.
Highlight #1: Exited all his airline stakes
Warren Buffett’s Big Break from Airlines
Buffett’s take on the air‑travel slump:
- He’s shaken and pretty honest: “The world’s turned upside down for airlines. I can’t quite tell how it’s changed, but I hope things straighten out soon.”
- More than just a shrug, he wonders if Americans are switching from “I love flying” to “I don’t need to.”
- He points out that a handful of groups—airlines among them—are suffering the brunt of a shut‑down that’s totally out of their control.
Why the full exit?
- Berkshire Hathaway doesn’t do “half‑measures.” If they decide to shed an investment, they’ll dump the whole lot.
- Buffett is uneasy about the future of passenger miles: “We’ll hit 2019 levels in maybe three‑four years? Uh‑no. Too many planes are in the hangars right now.”
This marks the second spill for Buffett in the air‑buster sector. The third? Almost zero chance. Berkshire is likely giving up on airline stocks for good.
What’s next for the sky‑business?
With figures, fans, and flies all stirred up, Buffett’s exit may just be a sign that the skies will keep sorting themselves out. Until then, he’s left the wings of his investment portfolio open for a sigh‑of‑relief breeze.
Highlight #2: Added to its cash pile
The Berkshire Cash‑Cattle Surprise
Everyone was braced for Buffett to unleash a monster money‑move during the market melt‑down. Even Bill Ackman had his crystal ball set on “big spend”.
Instead, Warren wrapped up Q1 2020 owning a sky‑high stash of $137 billion in cash—up from the previous $128 billion. He just pulled off a tidy $6.1 billion sale in April alone.
That’s not odd at all. Before the quarterly results hit the press, Vice‑Chairman Charlie Munger gave a hint that Berkshire wasn’t chasing bargains.
“We just want to ride out the storm and keep plenty of water in the tank,”
Munger quipped, “We’re not playing the ‘let’s throw everything into the fire’ game. We’ll keep calm and stay liquid.”
The message? Berkshire stayed out of the frantic March sell‑off. Cash planned to stay rather than be spent.
Potential Big‑Fish Deals
Buffett says he’s still ready to snap up something huge—$30‑50 billion worth—if the right opportunity pop up. For now, nothing’s caught his eye.
So while some expected a massive blockbuster, Buffett went the opposite route, ending the quarter with a richer piggy bank and a more cautious eye on the horizon.
Highlight #3: Berkshire incurred US$50 billion in losses, mostly due to market volatility
Big Numbers, Tiny Angles
Berkshire’s latest quarterly report has a headline that might raise eyebrows: a US$50 billion loss. But before you reach for the emergency popcorn, let’s break it down. The loss isn’t really a cash‑out catastrophe; it’s mainly a book‑value wobble caused by market swings. If the market stays stuck at its present level, that scary figure could flip into a US$20–30 billion gain in the next quarter. Yeah, a reversal!
Profits That Still Love the Numbers
On the day‑to‑day front, Berkshire moved its needle: US$5.87 billion in operating profit for the quarter, a solid 6% year‑on‑year jump. That’s not much of a leap in the grand scheme, but it’s enough to keep the shareholders smiling. Yet, the same reality that trickles into the “big‑Name” corporations will hit this beast: losses will probably dent Q2 earnings more than fans would like.
Pandemic – The Unwelcome Guest
Scattered across its empire, the pandemic has stirred up a bad mix: from “pretty mild to downright nasty” impacts. Even companies labeled as “essential” are feeling the heat—revenues slipped “considerably” in April. The bottom line? The shaky tread of the economy is taking a toll, and every sector feels a little bruised.
Bottom Line
In short, while the headline numbers look shocking, they’re mostly a chart bobbing higher or lower, not an actual financial tunnel collapse. Plus, the balancing act of the market could still swing things in a favorable direction next quarter. Stay tuned for the next episode of “Berkshire’s Market Mysteries.”
Highlight #4: Remains confident of America’s future prospect and the best action for the average investor is to buy the S&P500 index
America’s Unstoppable Resilience
Warren Buffett keeps reminding us that, while the short‑term market can feel like a turbulent roller coaster, the long game remains smooth sailing. He champions the idea that the United States will weather even the most fierce storms—yes, that includes the global pandemic—and come out on top.
Why “Nothing Can Stop America” Is Still a Reality
- Historical Strength – From the Great Depression to the tech boom, U.S. markets have bounced back.
- Innovation Drive – Cutting‑edge tech keeps the economy on a forward‑moving trajectory.
- Resilience Culture – Communities and businesses rebound faster than you can say “diversify.”
How a Regular Investor Can Ride the Wave
The easiest way for everyday investors to ride this wave is to buy a share in the S&P 500 index. Think of it as a “one‑size‑fits‑all” ticket to the market’s best performers.
Key Takeaway: “Bet on America”
If you adopt a long‑term stance on the S&P 500 and stick with it, you’re likely to outperform Treasury funds and lose less of your hard‑earned cash to pricey “expert” advice.
Highlight #5: Do not use borrowed money to participate in the market
Warren Buffett’s Sharp Take on Borrowed Money During COVID‑19
Buffett’s confidence in America remains high, but he hits the brakes on borrowing when a pandemic’s on the table. If you’re tempted to pad your portfolio with a loan, remember: the market’s got a nasty unseen variable in the form of the coronavirus.
The Big Punchline
“When the pandemic hits, it’s nearly impossible to predict what’s going to happen,” Buffett says. “That’s why you never want to use borrowed money, at least in my view, for investments.”
Why a loan is a bad idea when the tide turns
- No upside for borrowed cash in a world of uncertainty. The risk goes up, while the gain stays shaky.
- Leverage adds drama to a bad story. If the stock market gets a downturn, the debt you took on could amplify losses.
- There’s no legitimate reason for chasing America’s “great tailwind” with borrowed money. Keep it simple, use only what you’ve earned.
Bottom line
Buffett’s advice is easy to follow: keep your finances clean, stay away from loans while the world’s scrambling, and let the market take care of itself. That should keep the fun in investing without turning it into a circus of debt.
Highlight #6: Against stock buybacks are now “Politically correct” but this criticism is uncalled for
Buffett’s Take on Buybacks: A Fresh Perspective
Politics, Profits, and the Price Question
There’s a whole lot of buzz lately about buybacks, and William “Warren” Buffett says it’s high time to let the conversation get a bit less “politically correct.” He’s not opposed to companies buying back their own stock – that’s still solid money for investors. But the key is timing, folks.
In plain English: “When conditions are right, it should be obvious to buy back shares, just like dividends. There shouldn’t be any stigma attached.”
Debt‑Powered Buybacks: The Slip‑N‑Slide
For many years, corporations have kept their wallets open on cheap borrowing, fueling buybacks at whatever price the market cooks up. That inflates earnings per share (EPS) and looks good on paper — but it’s a shaky foundation.
- Using the low‑interest loan cushions more risk.
- If a “black swan” event strikes, that debt can explode.
- Airlines, for example, will likely sit idle in the buyback game for several years before the market turns in their favor.
Free Cash Flow to the Rescue
I’d rather you heed Buffett’s advice: fund buybacks with the sweet, honest earnings that come out of the business, not a borrowed phantom. This way your company stays lean, your debt stays low, and you’re better prepared if reality throws a curveball.
Highlight #7: US banks are in good shape
Warren Buffett & the U.S. Banks: “They’re Ready, Not Risky”
Buffett’s Big‑Picture View
Buffett thinks American banks are well‑prepared compared to the wild 2008‑2009 downturn. He’s all about the built‑up reserves and the rock‑solid balance sheets that banks now own.
- Huge reserves to cushion sudden shocks
- Strong balance sheets that can absorb losses
- Full backing from the Federal Reserve’s tools
A Fed’s Fallback Option
Even under severe economic stress, the big banks are unlikely to collapse, thanks to the Fed’s constant support. It’s like having a safety harness that’s always on.
Where the Tricky Loans Show Up
Buffett warns that banks might hit snags with energy‑sector loans and consumer credit in the near term. But the reserves’re set to grow in the coming quarters, giving them a cushion against bad loans.
Conclusion: Optimistic, Yet Cautious
Buffett is confident, but he reminds us that “nothing’s 100% guaranteed.” The banks look good now, but staying vigilant is still the smart play.
Originally posted on the New Academy of Finance, this article is for general info purposes only and isn’t professional financial advice.
