In the first quarter of 2020 Berkshire dramatically raised its cash position while stock holdings fell, sequentially, by 27%. In other words, during the largest collapse in Berkshire’s equity holdings since 4Q08 (when Buffett was buying stocks like a maniac), Buffett essentially did nothing*. This strange period of inaction by the world’s greatest investor suggests, it pains me to say it, that the world’s greatest investor may be no more…
To understand why Buffett didn’t behave like Buffett in the first quarter it is necessary to first recap the usual suspects:
1) Buffett is in search of whales and smaller stocks were (and are) the more opportunistic ‘value’ orientated picks in 2020.
2) In the first quarter of 2020 no one called Buffett begging for capital and/or offering sweetheart deals (see Goldman). Instead companies were showered with unprecedented monetary and fiscal stimulus affection.
3) Buffett was too preoccupied with dumping all of his airline holdings (again) to take advantage of the fastest bear market in history and/or the stunning rally that has followed.
While the above points no doubt played a role in Buffett doing his best impression of a deer caught in headlights, there must have been some other factor at play. After all, Buffett has welcomed every major market panic since he started investing buy purchasing depressed share prices! Does it make sense that Berkshire, already holding a record cash position leading into 2020, now holds nearly $140 billion in cash (versus $180 billion in equities)? Does it make sense that Buffett has repeatedly said that he hates cash and that you should never bet against America, but he watched stocks drop by 1/3 and did nothing?
Suffice to say, something happened from mid-March to today to dramatically change Buffett’s state of mind. Using airline stocks as the guide, consider the shocking quote-trail:
“The real question is how many passengers will they be carrying 10-years from now, 15-years from now, and what will margins be, and…” ~ Warren Buffett, February 24, 2020
‘I won’t be selling airline stocks’ ~ March 13, 2020 – Yahoo Finance
“I just decided that I’d made a mistake…in investing in the airlines business…The future is much less clear to me how the business will turn out.” Warren Buffett, May 2, 2020
What can explain Buffett saying don’t let covid-19 influence your investments one day to seemingly pricing in a worst case scenario the next? I blame Bill Gates:
“My own science advisor is Bill Gates…I’ve talked to him the last few days about it [covid-19]…” Warren Buffett
Conversations with “friend” Bill Gates help explain why Buffett – the greatest “buy when others are fearful” mind ever – has become a panic-seller. To be sure, Mr. Gate’s diabolic brainwashing of Buffett is the only thing that can account for Buffett basically raising cash for more than a decade only to welcome a bear market by raising more cash. As for those that think “diabolic brainwashing” may be an exaggeration, you may recall that before they met agent-Gates thought that what Buffett did was “almost parasitic”. Recall also that Gates’ has a history of making Buffett doing things he doesn’t want to do, including taking a vacation in Alaska in 2007. And even though the victimized Buffett once cried that “Bill Gates cost me about $3 billion”, he, apparently, did not learn his lesson…
Instead of talking with Bill Gates about covid-19 scenarios, Buffett should have been throwing some money at the markets 1Q2020. After all, if Buffett really loved owning Apple at $320 in February (Buffett said he did) why wouldn’t he be ecstatic about buying shares at $220 a couple of weeks later? For that matter, is cash really a better holding than American Express after its share price quickly cuts in half? Really?
In short, Bill Gates has turned the greediest mind ever into a frightened observer, and Buffett’s cash hoard now represents a directional bet on the markets. If the markets careen lower in the coming weeks and months (they certainly could), Buffett’s patience will look prescient. If not, Buffett may cry again, “Bill Gates cost me money!”…
And yes, for anyone wondering, while Mr. Gates may have had some influence on Buffett’s informed outlook, many of the conspiracy theories swirling around Gates are likely simply that.
*Berkshire added $4.01 billion in equities during 1Q2020 (versus $2.1 billion in sales).
