Has Age (or Reality) Made Warren Buffett Too Conservative and Too Cautious?

As investors get older, and as retirement approaches or has arrived, there is a generally accepted rule used by most fiduciaries that most client investments should be conservative and less risky than investors who have more time ahead of them. Does the same rule apply to Warren Buffett? Perhaps more importantly, should it?

Last weekend’s Berkshire Hathaway Inc. (NYSE: NYSE: BRK-B) annual meeting came with a few surprises. Frankly, it was might end up being among the most important news events after the market’s massive snapback rally since the March 23 panic-selling lows.

It was not supposed to be a surprise that Buffett had sold airline stocks, but the market was taken aback by his views that consumer behavior concerning plane travel would be changed for a long time and that the great companies with great management still face many new challenges. Buffett and his portfolio managers unloaded all their shares in Southwest Airlines Co. (NYSE: LUV), American Airlines Group Inc. (NASDAQ: AAL), Delta Air Lines Inc. (NYSE: DAL) and United Airlines Holdings Inc. (NYSE: UAL).

On top of other losses in his vast investment portfolio, Berkshire Hathaway lost billions of dollars in the value of its full portfolio of public equity holdings. Its company-owned franchises also will have seen their revenues and earnings vaporize in just a few short weeks. Holdings in Bank of America Corp. (NYSE: BAC) and Wells Fargo & Co. (NYSE: WFC), as well as the large position in American Express Co. (NYSE: AXP), contributed billions of dollars worth of financial losses in the first quarter.

Buffett will turn 90 years old later this year, and Vice Chair Charlie Munger is now 96. While age can come with great wisdom, most investors approaching 90 years old probably would not have been aggressive buyers of Apple Inc. (NASDAQ: AAPL). They also probably wouldn’t be touting Inc. (NASDAQ: AMZN) and Alphabet Inc. (NASDAQ: GOOGL) as great investments, but Buffett and his team bought Amazon shares in 2019.

One hard reality, with any references to age or incredible success aside, that Berkshire Hathaway is likely to carry always is that its business is very complex and is hard to evaluate in a classic earnings scenario. That also explains why so few analysts on Wall Street actually issue “Buy, Sell or Hold” ratings on its Class A and Class B shares.

Perhaps the biggest surprise from the 2020 annual shareholder meeting (what used to be known as Stockpalooza in Omaha — now just in virtual broadcast mode) was that Berkshire Hathaway deployed very little capital on new investments and shareholder benefits, despite the massive panic selling from the peak in February through that classic V-bottom on March 23. Buffett and his team of portfolio managers bought only $1.8 billion worth of public stocks and reportedly sold about $6.1 billion worth of stocks since the start of the year.

Buffett and his partner Munger now effectively have the ability to buy back Berkshire Hathaway’s shares at will, with no real reason. Despite the dropping stock price, and despite that lack of criteria to make repurchases, the conglomerate and holding company spent just $1.7 billion buying back its own shares in the first quarter, after using $2.1 billion to repurchase its shares in the fourth quarter of 2019.

As for why all these billions of dollars are referred to as if they were pocket change, note that Berkshire Hathaway’s cash balance rose to about $137 billion at the end of the first quarter of 2020. Its cash balance was $128 billion at the end of 2019. The company’s public equity holdings are still more than $180 billion, but that’s also down from the end of 2019 when the market was still quite strong.

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