The coronavirus crisis has caused unprecedented volatility in the stock market, with investors puzzled as to when and how markets will recover. It’s a clear sign of how unpredictable the current market is when even world-renowned investor Warren Buffett doesn’t know what’s coming. Buffett’s holding company, Berkshire Hathaway, recently announced a first-quarter net loss of $49.75 billion, proving that even the best of us don’t know what’s around the corner.
Where did he go wrong?
It’s not necessarily the case that Buffett made a misstep, so much as it’s overwhelmingly likely in the current market that fund managers will have made losses this quarter simply due to the climate.
However, it’s easy to pinpoint one obvious mistake in Berkshire Hathaway’s first-quarter trades. The company spent almost $45 million on shares in Delta Air Lines, a US airline which was considered a steal at the time by investors who assumed that the grounding effects of the pandemic would be short-lived.
Of course, we now know this wasn’t the case: it’s looking increasingly likely that air travel will be heavily affected across the globe for not just months, but perhaps years to come.
As this reality dawned, Buffett sold his stocks in all four major US airlines including Delta and United Airlines, another airline he’d only recently invested in.
The future for Warren Buffett
Despite this setback, Warren Buffett still boasts a strong position as an investor. Berkshire Hathaway is still holding around $137.3 billion in cash because Buffett has struggled to buy large companies outright over recent years, and as a result, they’ve done more selling than buying.
This puts the firm in a strong position to capitalise on cut-price stocks when the time is right.
Considering that, during the first quarter of 2020 Berkshire Hathaway actually bought up around $1.58 billion worth of Berkshire Hathaway stock, it’s clear Buffett hasn’t lost any confidence in himself.
The firm’s recent wobble is simply proof of the difficulties investors face in recognising and predicting the true economic impact of the COVID-19 pandemic.