At Berkshire Hathaway’s annual meeting this past weekend, the Oracle of Omaha, who’s been very quiet during the March – April 2020 stock market roiling, disclosed to investors the material portfolio changes the company has made since the onset of the COVID-19 outbreak. One of Warren Buffett’s more substantive disclosures was Berkshire’s exit from all of its airline holdings. Berkshire’s aggregate stake in the “Big 4” airlines was approximately $4 billion dollars at the end of Q4 2019 , split between positions in United Airlines, American, Southwest and Delta. Buffett followed up with this gem of a comment, “I don’t know that three, four years from now people will fly as many passenger miles as they did last year. You’ve got too many planes.” This was an explicit statement speaking to the challenges posed by the pandemic to the airline industry. But I don’t believe that’s all he was saying.
Besides the collective gasp of horror heard around the globe from every investor in the major airline carriers, the comment stands on its own as being a particularly dire prognostication on the economy writ large, from one of modern history’s most successful investors, and one who is particularly known for being unapologetically bullish on American companies. What Warren Buffett says matters. What he said yesterday matters. The Oracle’s opinion carries weight in the markets, and this affects all of us.
I’m not 100% in Buffet’s camp. I’m optimistic that the pharmaceutical industry will find and manufacture at scale a vaccine within the next 24 months (as I’m writing this, the CEO of Gilead just announced that its Remdesivir anti-viral will be ready to ship to US hospitals this week). However, my view on the economy is aligned with Warren’s short to mid-term forecast on the airline industry, and the cascade effects which the crippled airline industry will have on all the other industries it touches.
In my opinion, what Buffett said yesterday wasn’t just a prognostication on the airline industry. What he was really saying is that his short to mid-range economic outlook is bleak; a foreboding commentary on a huge swath of the global economy that intersects with energy, food, all modes of travel, restaurant, hotel, and real estate (and I’m probably missing a lot more sectors because I’m struggling to get my head around the sheer magnitude of interconnectivity). It’s a dire economic forecast for the nation, and the world, that goes well beyond the limited scope of the airlines.
In fairness to Warren, he is still bullish on the USA, American companies, and the American people. And for what it’s worth, so am I. But I do take heed of what he says about the next 6 to 24 months. It’s going to be rough for all of us. As such, I earnestly accept the wisdom of the 89-year-old Oracle and will “buckle-up” for the turbulence, always sure to be hopeful about the future, and thankful for the present.
Adam T. Hark is Managing Director of Wellesley Hills Financial. With 15+ years of consulting in payments technology, SaaS, and fintech, Adam advises clients on growth, exits, and market positioning strategies. Adam can be reached at ath@wellesleyhillsfinancial.com.
