While day traders and retail investors bought the biggest market drop in a decade, it's clear that Warren Buffett didn't.
During the last financial crisis, Warren Buffett made bank as the lender of last resort. He was able to get some sweetheart deals buying preferred shares with 10% yields from banks.
Towards the end of the crisis, he made his largest purchase: The Burlington Northern Santa Fe railroad, a $26 billion acquisition. As Berkshire Hathaway’s (NYSE:BRK.A) latest earnings show, however, Buffett botched it this time. Badly.
At 7:00 A.M. Omaha time Saturday, Berkshire released its earnings. Overall, they reflected a lot of the changes affecting the economy in the past quarter.
Earnings were better than expected, with the A shares trading at over $314,000 each, beating expectations by $13,500 per share (or beating by $8 for those of us non-billionaires with B shares). As with many other companies, revenues beat expectations handily, but still showed a year-over-year decline of 11%.
Finally, a much-watched piece of data, Berkshire’s total cash and Treasuries, showed the company had $141.8 billion in the bank. Against the company’s market cap of $509 billion, Warren Buffett has set a 28% allocation to cash.
As was widely predicted based on the share count, Berkshire stepped up its share buyback program, picking up about $5.1 billion in shares, up from $1.7 billion in the first quarter.
Overall, the earnings picture points to a pretty standard quarter. Considering the historic market moves, however, that’s a problem.
Looking at earnings, investors wouldn’t have picked up on the fact that, frankly, Buffett blew it.
Amid the first bear market in a decade, Buffett failed to put a meaningful percentage of that growing cash hoard to work.
Since the March bottom, many stocks have recovered. Some have even headed to new highs, including Berkshire’s most significant stock position, Apple (NYSE:AAPL). Apple now makes up over 40% of Berkshire’s portfolio.
Buffett didn’t buy more amid the panic in March. Historically, some of his best buys, such as The Washington Post Company back in the 1970s and Coca-Cola (NYSE:KO), occurred during a bear market.
Nor did he buy any of the other tech companies that have dominated the index as well. Based on his recent acquisition in the natural gas space and ongoing buy of Bank of America (NYSE: BAC) shares, his most substantial changes year-to-date have been to sell all his airline shares at a loss.
That may explain why Berkshire, which tends to trade closely to the S&P 500 index, lagged that index on the market recovery.
Meanwhile, an army of day traders has blown past Buffett this year, taking advantage of the market selloff to buy more, as financial advisers often tell their clients to do.
The poster child for this new phenomenon is Dave Portnoy, founder of Barstool Sports, who frequently appears on social media going over his trades. He has helped raise an army of new investors—with great returns too.
Buffett, who once stated, “Be greedy when others are fearful,” blew it during the biggest market scare in a decade.
As long as the government keeps stimulating and the Federal Reserve keeps printing money, he’ll keep blowing it while traders like Portnoy grow their wealth.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The author holds investment positions in Berkshire Hathaway and Apple.
Last modified: September 23, 2020 2:20 PM