Warren Buffett has been a net seller of equities this year
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Famous investor Warren Buffett is still a believer in the US economy long-term but has warned investors a bumpy is ahead.
Over the weekend, millions tuned into Berkshire Hathaway’s annual shareholder annual meeting streamed from Omaha, Nebraska.
Despite being no stranger to economic shocks, Buffett admitted nothing like this had happened in his lifetime.
“In 2008-09, our economic train went off the tracks – this time we pulled the train off the tracks and sent it to a siding,” he said.
“I don’t really know of any parallel in terms of the most important and productive country in the world in effect sidelining its economy, its workforce and obviously and unavoidably creating a huge amount of anxiety and changing people’s psyche and causing them to lose their bearings.
“This is quite an experiment and we may know the answer to most of the questions [we’re asking] soon but we may not know the answers to the most important questions for several years.”
However he still believed the US economy would eventually see its way through the crisis.
“The American magic has always prevailed and it will do so again,” he said.
In spite of Buffett’s long term optimism and US$137 billion cash pile much of his company’s activity in recent weeks has been selling. In fact, he has not been buying at all.
“We have not done anything, because we don’t see anything that attractive to do,” he said.
COVID-19 has led to a first quarter loss of US$49.7 billion ($74.9 billion) – a quarterly loss for Berkshire. In the first quarter last year, the company had made a US$21.7 billion ($33.9 billion) profit.
Buffett also warned some industries would not survive the current pandemic, at least in their current size.
Most notably Berkshire has exited all four of its US airline investments. Buffett’s rationale was not knowing if and when passenger levels will return to pre COVID 19 levels.
“I don’t know that three, four years from now people will fly as many passenger miles as they did last year,” he said.
Buffett also admitted to one shareholder making a mistake in buying shares in one particular oil company, Occidental Petroleum. He isn’t yet exiting the industry but admits it has little hope with current oil prices.
“The oil production is going to go down in the next few years because it does not pay to drill. This situation is you don’t know where you’re going to store the incremental barrel of oil, oil demand is down dramatically.
“For a while the Russians and Saudi Arabians were trying to outdo each other in how much they could to produce. When you got too much in storage it doesn’t work its way out of that fast.”
Buffett also admitted the proceeds of his stock sales had been put into Treasury bills (government bonds). These are perceived as the ultimate safe-haven asset.