Would you bet against the Oracle of Omaha? Hundreds of thousands of casual investors are. While Warren Buffett sold nearly $6.5 billion worth of airline stocks in April, the industry’s shares are some of the hottest offerings on the Robinhood brokerage app.
When Warren Buffett divested his entire airline holdings in April, it came as quite a shock. Berkshire Hathaway (NYSE:BRK.A) had just been a buyer of Delta Airlines (NYSE:DAL) as recently as February. An SEC filing disclosed the purchase of 976,507 Delta shares on Feb 27 for $45.3 million at $46.40 per share.
At the first-ever virtual Berkshire Hathaway annual shareholder meeting, Warren Buffett said buying the airlines was a mistake, and their future is now uncertain:
I don’t know that three, four years from now people will fly as many passenger miles as they did last year.
Berkshire Hathaway was one of the biggest shareholders in several airline companies. Some have speculated that Buffett would eventually own one of the carriers.
The dramatic crash in equities prices this year looked like a good time for that “elephant-sized” acquisition that Buffett’s been hankering for. Some thought t In Feb 2019, he told Berkshire shareholders in his annual letter:
In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects.
He said just thinking about it quickened his heart:
Even at our ages of 88 and 95 — I’m the young one — that prospect is what causes my heart and Charlie’s to beat faster. (Just writing about the possibility of a huge purchase has caused my pulse rate to soar.)
But instead, Berkshire sold Delta Airlines stock worth $314 million, and $74 million of Southwest Airlines (NYSE:LUV) on Apr 1 and 2. It was no April Fools prank. By the end of the month, Warren Buffett had rid his company’s books of $6.5 billion in equities. Most of it was Berkshire’s entire airline holdings.
It looks like Warren Buffett is being fearful as retail investors are getting greedy. Airline stocks are some of the most popular offerings on Robinhood on Sunday.
American Airlines was the fifth most popular company on the free stock brokerage app Sunday. 459,129 users held shares through the app. Delta Airlines was the seventh most popular stock, with 433,611 Robinhood users long DAL.
United Airlines (NASDAQ:UAL) was the 18th most popular in the hands of 226,329 users. Southwest Airlines was the 43rd most popular, with 125,420 users holding.
Why would amateur investors bet against Warren Buffett, a man called “the Oracle,” on airline stocks? Since equities wilted in the face of coronavirus, retail investors have swarmed the stock market looking for cheap offerings.
Jeffrey Kleintop, the chief global investment strategist at Charles Schwab, said in March that individual investors were “the one stabilizing factor in this market.” They’ve been buying all the risky assets that institutional investors have been selling off.
Looking at other Top 100 Robinhood stocks might be a clue as to what retail investors are thinking. Ford (NYSE:F) and General Electric (NYSE:GE) are even more popular than airline stocks. Carnival and Norwegian Cruise Line are also high up on the list.
And long-troubled Canadian marijuana companies like Aurora Cannabis (NYSE:ACB) and Canopy Growth (NYSE:CBC) are perennial favorites on the brokerage platform. It appears that retail investors are betting on cheap, troubled equities, hoping for a big payoff. Warren Buffett, who’s all about the underlying businesses’ ability to generate earnings, doesn’t see a big payoff in airline stocks any time soon.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com. The above should not be considered investment advice from CCN.com. The author holds no investment position in the aforementioned stocks.
Last modified: May 4, 2020 10:15 AM UTC