Worries about the novel coronavirus pandemic and slumping oil torpedoed stock prices have been doing their rounds in the bear market for a while now. Even though there have been good market days at the back of stimulus packages infused in economies, reportedly successful strive towards flattening of the COVID 19 curve from few corners of the world, the sinusoidal trend of the share market has surprised investors and experts alike.
In the wake of the market turmoil, the steps of investment magnates are being gauged more vigilantly than ever before. Recently, the Oracle of Omaha caught the market eye after his firm, Berkshire Hathaway reduced its stake significantly in Goldman Sachs, while exiting its positions in Travelers and Philips 66.
Buffett Trims Stake in Companies
In the first quarter of the year, Berkshire Hathaway made some notable changes to its investments. These changes seem likely as the period was marked with the COVID 19-induced market volatility.
Below are few significant amendments made by the Company, as per a regulatory form filed by it with the Securities and Exchange Commission (SEC), which details the Company’s US listed investments as of 31 March 2020-
Sale of much of its stake in Goldman Sachs Group Inc, with stake falling by ~84% to close to 1.9 million shares was reported. This has driven the American multinational investment bank and financial services company’s value down from about USD 2.8 billion to less than USD 300 million.
This decision was made despite Mr Buffett, one of the most influential philanthropists of our times, assuring often that the banking sector was not his primary worry amid the pandemic. Market experts believe that as Goldman Sachs slumped by almost 33% in the period when COVID-19 roiled financial markets, Berkshire Hathaway must have taken the decision to sell its stakes in it, at this level.
His move has made investors question banking stocks in their portfolios- If issues turn critical enough in an economy, will the robust banks also be in a lot of strain? Well, might be too early to assess, taking cues from Mr Buffett’s remaining shareholdings. Read On!
The Sage of Omaha remains a main stakeholder in the entities like American Express, Bank of America, Bank of New York Mellon, JPMorgan Chase, PNC Financial, US Bancorp and Wells Fargo- pretty much hinting that the overall the banking system might not really be the problem.
Sale of the rest of the smaller interests in insurer company like (Travelers Cos) and oil refinery company (Phillips 66) was also reported, which were worth USD 43 million and USD 25 million, respectively. Berkshire has also clipped its holding of the Amazon stock slightly, along with Synchrony Financial, Teva Pharmaceuticals, Liberty Global, Sirius XM, and Verisign.
Mr Buffett had also sold the entire stake in US airline stocks via his holding company, bailing on the industry stating that the virus had altered the business in a “very major way”. He stated that Berkshire initially invested between USD 7 billion and USD 8 billion for large stakes in the key airlines but did not get anywhere near that in return for its investment.
Recent in Equites Space by Berkshire
According to Forbes, Buffett’s conglomerate merely bought USD 426 million worth of equities in April 2020. The value of stocks sold by Berkshire in the same period was USD 6.5 billion. Mr Buffett admitted that the Company did very little in the first quarter, majorly due to the “mistake” with airline stocks, and not because the stock market was going to go down.
Mr Buffett’s position in Southwest, Delta, United and American Airlines were cumulatively worth USD 4 billion.
Berkshire Hathaway’s First Quarter Earnings
In the first quarter of 2020, Berkshire Hathaway reported a massive net loss of nearly USD 50 billion, one of its biggest quarterly losses ever, down from the over USD 21 billion in profit last year. This was majorly catalysed by the COVID 19 market selloff through February and March 2020, taking a substantial toll on the company's businesses. Consequently, the cash pile rose from USD 125 billion to USD 137.3 billion. This had upset investors who seemed sad with the declining yields it produces for the entity.
During the pandemic period, the Company made merely USD 1.8 billion in net stock purchases, taking many by disbelief who expected the astute investor to deploy the huge cash pile and purchase stocks amid the market meltdown. However, the cash stake has prospectively risen in April as the Company sold its entire Airlines stakes in the four largest US airlines. Consequently, the Company has netted over USD 6 billion from stock sales in April. Reportedly, Mr Buffett is on a look out for a huge acquisition as well.
At 31 March 2020, insurance float (the net liabilities the Company assumes under insurance contracts) was close to USD 130 billion, up by almost USD 1 billion since year end 2019.
After market close on 15 May 2020, Berkshire Hathaway Inc. Class A, which trades on the New York Stock Exchange as BRK.A, quoted USD 2,53,500.75, down by 1.07%, relative to its last close. It remains to be one of the priciest stocks in the US. The Company has a market cap of USD 410.83 billion. The stock is down by almost 20% so far this year.
It should be noted that Mr Buffett’s role to reinstate confidence in the market during and after the 2008 financial crisis was instrumental. Even when he has remained relatively quiet amid the coronavirus pandemic and seemed to be fairly conservative with his investments in the current market, his wisdom and patience with investments continues to inspire investors, new and old.