Warren Buffett may not have had the best of years.
But with the COVID-19 pandemic moving across the world at lightning speed, and government and central banks responding almost as quickly, the Oracle of Omaha could be forgiven for erring on the side of caution.
On Saturday 1 May, Buffett and his long-time business partner Charlie Munger hosted Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE: BRK.B)'s annual general meeting (AGM). With a nod to the continuing impact of coronavirus, the AGM was held virtually.
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Why Buffett sold out of the US airlines
One of the questions that came up during the AGM was Berkshire Hathaway's decision to sell its holdings in four United States airline shares during the early months of the pandemic.
While most every travel share plummeted during those first months, massive government stimulus, near-zero interest rates, and the rapid rollout of vaccines have seen most airline shares rebound strongly.
For example, Delta Air Lines Inc (NYSE: DAL), which Berkshire sold, has rebounded 145% from its 15 May 2020 lows.
Warren Buffett, however, said that the airline's share price recovery may have been significantly more muted if Berkshire hadn't sold its holdings. This, he said, was owing to the fact the airlines may not have been the beneficiary of as much government largesse had Berkshire still been invested.
He said (quoted by Bloomberg), "They might have very well had a very, very, very, very different result if they had a very, very, very rich shareholder that owned 8 or 9%."
The billionaire investor conceded that over the past year, overall:
The economic recovery has gone far better than you could say with any assurance, so we didn't like having as much money as we had in banks at that time. I do not consider it a great moment in Berkshire's history, but also we've got more net worth than any company in the United States under accounting principles.
As for Berkshire's growing mountain of cash, currently somewhere in the range of US$145 billion (AU$188 billion)?
Vice chair Charlie Munger stepped in to answer why the company didn't splurge more near the market lows.
Munger said no one (not even money managers!) can call the market bottom with any accuracy. "There always is some person who does that by accident, but that's too tough a standard. Anybody who expects that out of Berkshire Hathaway is out of his mind."
Why Warren Buffett likes Apple shares
At the current Apple Inc (NASDAQ: AAPL) share price of US$131.46, the company has a mind boggling market capitalisation just north of US$2.2 trillion. That's thanks to the share price gaining 467% over the past 5 years, with shares up 79% in the past year alone.
And Warren Buffett, once known for avoiding tech shares because he didn't understand them, is a big fan.
Citing the current ultra-low interest rate environment as supporting the big technology shares, Buffett said, (also quoted by Bloomberg) "The Googles and Apples are incredible in terms of what they earn on capital. They don't require a lot of capital, and they gush out more money."
According to Bloomberg, Berkshire owns a little more than 5% of all Apple shares. And Buffett no longer feels put off by its technological nature, instead focusing on the company's quality management and relationship with its customers.
I feel that I understand Apple and its future with consumers around the world. Apple has fantastic management — Tim Cook was under appreciated for a long time, and he has a product that people absolutely love. There's an installed base of people and they get satisfaction rates of like 99%.
This brings us to 3 of Warren Buffett's mantras that arguably every investor should keep in mind. Namely, and in no particular order, they are something along the lines of:
- Look for companies with great brands and the ability to control prices.
- A great manager is as important as a great business.
- And, the best investments provide real-world value, not just market value.
Happy investing!
