The following is an excerpt from ValueWalk’s interview with John Buckingham, Principal and Portfolio Manager at Kovitz and editor at the Prudent Speculator, discussing the opportunities in airlines and why Warren Buffett sold his airline equities.
Buy Airline Equities?
Well, we're, you know, these days, the difficulty for those of us who focus on financial fundamentals, which is what we do, is that there's serious question marks about the near term in terms of, you know, earnings and sales and what kind of metrics you might want to put on on those. Because, you know, you can look at many companies are trading at two or three times earnings.
Tiger Legatus Master Fund was up 0.1% net for the second quarter, compared to the MSCI World Index's 7.9% return and the S&P 500's 8.5% gain. For the first half of the year, Tiger Legatus is up 9%, while the MSCI World Index has gained 13.3%, and the S&P has returned 15.3%. Q2 2021 hedge Read More
You know, if you look at airline equities and happy trading it, you know, one and a half times earnings, Well, clearly, you can't evaluate an airline stock on a PE basis based on trailing earnings. So you have to make some assessments about where earnings are going to be in the future. And, you know, our view is that trying to take a three to five year outlook is how we always focus our attention not on, you know, three weeks or five weeks or three months or five months outlook.
So, when you're looking at longer term, you know, we do believe that ultimately the global economy will rebound. Yes, we may have a wave to COVID.
And certainly, we're still dealing with it now. But ultimately, we'll figure it out, if you will, life will get back to somewhat normal and business as well will ultimately get back to, you know, the business of doing business. And so corporate profits will rebound. And so we what we're trying to ensure is that the businesses we're investing in, have the capacity, the wherewithal to make it to that day from where they are today.
On Buffett Selling His Airline Equities
As we know, Warren Buffett sold his airline stocks. And, you know, we're constantly evaluating all the holdings in our account, and hence we like to say everybody's fighting for a spot. So that's something we find that's more attractive. Well, we'll move on to that. But so I think what investors should be doing in this environment is, you know, taking advantage of some of the, the, the fallen stocks that have gotten, you know, beat up badly, but that were, you know, names you'd always wanted to maybe own but were too expensive.
And then, you know, the, I hate to say never let a crisis go to waste but, you know, if you haven't, if you have a taxable account, you know, these are opportunities to swap out of a for B and realise a tax loss. And of course, when when we talk about about the situation, it's, you know, it's if you think, Well, last year, you know, equities soared, you know, we had a fantastic year last year.
And we haven't given back all of what we made last year. And so, you know, this idea that everybody has losses, yeah, if you came late to the party you do, but in most portfolios, you're going to have some big winners still, and you may have some, some other things that have losses on instead allows you to kind of rebalance.
So, you know, if you owned Apple and Microsoft, and as we do, you know, we took some money off the table in Microsoft earlier this year. And you know, we had massive gains. So, you know, taking some losses can help so you don't have to write a check to Uncle Sam for you know, for the capital gains, so, so take advantage of the downturn and don't even bank or book some capital losses that can be used, you know, to offset gains as we go forward.
The full transcript can be found on ValueWalk Premium.