Why didn’t Warren Buffett buy more shares in the recent bear market?

When Berkshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B) reported its March quarter activity, many investors were shocked to see that …

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When Berkshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B) reported its March quarter activity, many investors were shocked to see that Warren Buffett had not put more of his massive cash pile to work. Buffett didn’t make any meaningful buys, despite the S&P 500 Index being down as much as 34%. This included Berkshire’s own stock, which had been trading at a price-to-book value below Buffett’s previously touted buy zone of 1.2 times.

Further to this, it was interesting to see that he had sold down certain shares during the recent bear market. Primarily, the mass exodus from the US airlines.

Why didn’t Warren Buffett buy more shares?

No one other than Buffett (or Charlie Munger) will know why Berkshire acted the way it has recently, but here’s my best guess.

  1. Buffett is an investor. He thinks and acts for the ultra long term. Short-term volatility may provide buying opportunities, but with an ultra long-term horizon, investing with so much uncertainty means Buffett doesn’t want to make bets he’s not sure of.
  2. The share market is future looking, which is why the market has partially bounced back despite the reporting of increasing unemployment. But, there is an argument that the market has recovered out of line with the economy. We do not yet know the full economic impact of COVID-19, or if there will be a second wave. Warren Buffett doesn’t invest in what he doesn’t know or understand.
  3. Berkshire performed so well coming out of the Great Recession in part because of the preferential deals and discounted purchases Buffett could make whilst other businesses were distressed. Many of these deals and purchases weren’t made straight away and Buffett is probably hoping to do the same again as the economy emerges from the effects of the pandemic. It is worth noting that between 1987 and 2016, the average time for the S&P/ASX 200 to reach new highs after a correction of 10% or more was over 3 years.

Why did Buffett sell the airlines?

This one is fairly simple. His thesis was broken and he thinks he can redeploy that capital into other ideas or keep it safe in cash.

What ASX investors should do

Retail investors won’t get preferential deals like Buffett. Dollar cost averaging into great shares is a fantastic way to ensure you don’t miss out on discounts.

The ASX is made up of many shares. Some will be cheap and some will be expensive. Be selective and buy quality businesses with strong balance sheets and long-term prospects. Some quality businesses to consider are Treasury Wine Estates Ltd (ASX: TWE), Aristocrat Leisure Limited (ASX: ALL) and Volpara Health Technologies Ltd (ASX: VHT).

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Lloyd Prout owns shares in Aristocrat Leisure Limited and Berkshire Hathaway Inc and expresses his own opinions.. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited and VOLPARA FPO NZ. The Motley Fool Australia has recommended Berkshire Hathaway (B shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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