Berkshire Hathaway – Don’t Write This Elephant Off Just Yet

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Berkshire Hathaway, Warren Buffett’s investment vehicle could not escape the horrible pull of the markets this year. With stocks deep in the red in the first quarter of the year, Berkshire Hathaway, also took a beating.

Q1 2020 hedge fund letters, conferences and more

Berkshire Hathaway’s Class A stock price has dropped 20% since reaching a high at $347,400.00, which is a lot but still much less than the broader stock market which has lost about 35% this year. The volatility in the market is truly astounding, with major stock market indices bouncing up and down 10% a day thanks to a currently escalating Coronavirus pandemic.

However, Berkshire Hathaway is one of the best capitalized companies in the U.S., and chances are that Warren Buffett will once again load up his “elephant gun” and get ready to go on an acquisition spree, the likes of which investors haven’t seen since the most panicky days of the financial crisis more than a decade ago.

Unreal Cash Pile Ready To Be Deployed

Berkshire Hathaway has more than $120 billion of cash sitting on its balance sheet, giving the conglomerate giant an unreal amount of firepower it can use to buy either private or public companies at much more affordable and reasonable valuations than just last quarter.

Warren Buffett disclosed in a CNBC interview earlier this year that he was ready to complete a major acquisition in the fourth quarter of last year, but the deal ultimately fell apart.

With stock prices down considerably since the end of the last quarter, it is easy to see how Buffett is itching even more in his seat to pull off another acquisition in either the private or the public markets. If there is anything to learn from Buffett, it is that he is buying when the market is in a state of panic and selling when the market is in a period of denial or exuberance. More likely than not, Berkshire Hathaway is probably eagerly screening for opportunistic acquisitions, just like he did back in 2008.

Furthermore, Berkshire Hathaway certainly also retains the option to double down on stock purchases and add to existing positions the company holds in its security portfolio such as Apple, Bank of America, American Express or Mastercard. Berkshire Hathaway has proven its excellent market timing skills many times in the past, and his investments in Goldman Sachs and Bank of America at or near the height of the credit crisis come to mind which have earned shareholders billions of dollars.

Berkshire Hathaway Sells Delta Air Lines Shares

Most recently, Berkshire Hathaway dumped a large portion of its shares in major US airlines in which the company has owned a large percentage. Berkshire Hathaway sold about 13 million shares of Delta Air Lines (18% of its holding) and 2.3 million shares of Southwest Airlines (4% of its holding) for a total of $388 million. With national lockdown orders still in effect, US airlines are facing an existential crisis and might even need a government bailout. Berkshire Hathaway’s recent actions disclosed via its 13-F filing certainly show that the Berkshire Hathaway expects more pain for the exposed and vulnerable airline industry.

Notwithstanding, Buffett has shown excellent timing skills in his past decades of investing, which strongly raises the odds that new acquisitions or opportunistic investments at very favorable terms could be announced soon. With more than $120 billion cash at hand, the Coronavirus crisis could prove to be another opportunity for Berkshire Hathaway to invest into distressed market sectors such as airlines, hotels, cruise liners or energy at a time when everybody else is heading the other way. Given Buffett’s impeccable investment record, investors don’t want to find themselves on the other side of the trade.

This article first appeared on ValuewalkPremium

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About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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