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Berkshire Hathaway had a record $137 billion in cash and equivalent instruments on its balance sheet at the end of Q1 2020. Meanwhile, Warren Buffett has decided to sell the airlines stocks.
Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE: BRK.B) first-quarter earnings have shown that the company’s Chairman and CEO Warren Buffett built up the group’s cash bastille and bought only tiny portions of stock during the violent romp of equity markets due to the coronavirus outbreak.
Berkshire Hathaway said its GAAP net loss in the first quarter of 2020 came to $49.75 billion or $30,653 per Class A share.
On the other hand, operating income, which Buffett thinks as of a better performance measure, rose 6% on a yearly basis to $5.87 billion.
Asset value fell 7% quarter-on-quarter to $760 billion. The company’s cash pile grew to $137 billion, compared to $128 billion in the fourth quarter of 2019.
As per the latest information, the company spent just $1.8 billion buying stocks and only $1.7 billion re-buying Berkshire Hathaway shares.
‘Oracle of Omaha’ May Be Not So Clairvoyant
The results could suggest that the “Oracle of Omaha” wasn’t really an oracle ‘cause obviously he didn’t see this coming. He couldn’t possibly imagine that any of his traditional value opportunities in the market could fall and that could go the S&P 500 down more than 30%.
Be it as it may, in his latest interview he Buffett stated that the United States economy will definitely survive the negative impact of the coronavirus as “nothing can basically stop America.”
“The American miracle, the American magic has always prevailed and it will do so again.”
He also noted that this is the first time ever, the world’s “most productive” country was forced to “sideline” its economy and workforce, but reiterated he is confident the country will be able to bounce back once the virus is contained as it has done before in the past.
However, the truth is that a massive $50 billion loss in the first quarter is actually a record for Buffett’s conglomerate.
Still, this quarterly result can be easily misleading because the fact is, Berkshire owns a lot in other company’s equities.
Accounting rules changed a few years ago and now the company needs to report unrealized losses inequities, so this loss is overall just a reflection of the fast-moving bear market in stocks that happened in the first quarter.
Buffett Sold Airlines Stocks amid Coronavirus
Buffett is not really eager for investors to watch the quarterly earnings, but since the situation is like it is, he thinks they should first look at the operating results. If we exclude the occasional swings in stock prices, Berkshire’s operating earnings rose to $5.9 billion from $5.6 billion in the same quarter a year ago.
Berkshire Vice Chairman Charlie Munger said:
“We just want to get through the typhoon, and we’d rather come out of it with a whole lot of liquidity.”
He also added that companies were “frozen” and not calling Buffett for investments like during the financial crisis. Be it as it may, just after the earnings report was released, Berkshire Hathaway sold all of its shares of American Airlines, Inc. (NASDAQ: AAL), United Airlines, Inc. (NASDAQ: UAL), Delta Air Lines, Inc. (NYSE: DAL), and Southwest Airlines Co. (NYSE: LUV). Berkshire’s collective stake in the four U.S, airlines was worth several billion dollars, because it is estimated that Buffett held a stake of between 8% and 11% in the carriers.
Meanwhile, Buffett told Berkshire shareholders that the conglomerate hasn’t made any big investments recently because “we don’t see anything that attractive to do.”
Berkshire started divesting its airline stake already earlier last month, noting it sold 13 million Delta shares for a total value of $314.2 million and 2.3 million Southwest shares for a total value of $74.3 million.