Buffett Jettisons Airline Stocks, Still Cheerleads America

Warren Buffett says investors should be greedy when others are fearful, so there's something disconcerting when the CEO of Berkshire Hathaway (BRK.B) is accumulating cash and dumping airline stocks.

The Oracle of Omaha didn't exactly sound fearful when he presided over a virtual version of Berkshire Hathaway's annual meeting on Saturday, May 2. But his usual sunny optimism was mostly on hold. Rather, Buffett was sober and uncertain, and he made it clear that Berkshire Hathaway is hunkering down for what could be a very long ordeal.

Berkshire Hathaway might have a record $137 billion in cash sitting in its coffers, but Buffett said that "isn't all that huge when you think about worst-case possibilities."

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Gulp.

The airline industry is as good a candidate as any to suffer a worst-case scenario. The investment thesis that prompted Buffett to pour billions into American Airlines (AAL, $10.64), Delta Air Lines (DAL, $24.12), Southwest Airlines (LUV, $29.23) and United Airlines (UAL, $26.62) back in 2016 is in ruins.

In February, Buffett actually added to his airline holdings. In March, he said that he "won't be selling airline stocks" even as the industry reeled under the coronavirus-led collapse in air travel. However, he foreshadowed his latest move in early April, when he reduced Berkshire's stakes in DAL and LUV.

And now on the first Saturday in May, he announced that he sold the totality of Berkshire's position in the airline industry.

"I don't know whether two or three years from now that as many people will fly as many passenger miles as they did last year," Buffett said. "They may and they may not, but the future is much less clear to me."

To Buffett's credit, when the facts change, he changes his mind. And there were billions of reasons not to acknowledge this mistake.

Prior to selling out, Berkshire was Delta's top shareholder and the second-largest shareholder in United and Southwest. Berkshire was also the third-largest holder of American Airlines' stock.

Collectively, Berkshire sold 175 million shares in the air carriers. At current prices, those stakes were worth about $4 billion.

That's far less than he paid for them.

Since the end of the third quarter 2016 when Buffett initiated the investments to May 1, 2020, LUV fell 25%, DAL lost 39%, UAL shed 49% and AAL plunged 71%.

Berkshire Hathaway is expected to release an update of its holdings next week. By way of a 13F regulatory filing, investors will get to see if there are any other changes in BRK.B's equity portfolio.

One caveat, however: The filing will include changes made during the first three months of the year. Moves made after March 31 don't have to be disclosed in the upcoming report, so we likely won’t see his airline moves reflected in this filing.

It's important to note that Buffett didn't predict doom and gloom on Sunday. His usual sanguine bullishness might have been replaced by caution and uncertainty, but he still has faith in the long game that has served him so well for more than 50 years.

"The American miracle, the American magic has always prevailed, and it will do so again," Buffett said.

The airline stocks are gone, however. It remains to be seen what falls to the wayside next.

It's safe to say the market will be following changes to Berkshire's portfolio this year with more than a little anxiety.