Скачать или смотреть Why Buffett Sold Delta (and LOST $5bn from AIRLINE STOCKS in March 2020!)

Why has Warren Buffett sold shares in Delta Airlines? What happened to being greedy when others are fearful? Have the delta share buybacks caused this? What’s next for airlines?

After buying 976'000 Delta shares on February 27th, Buffett stated unequivocally on March 13th that he would not sell Delta airline stocks.

Three weeks later Berkshire Hathaway sells Delta, or more specifically, Warren Buffett sells delta i.e. a portion of his delta and southwest airlines holdings.

Is Delta airlines bankrupt?

The cash that Delta has available is just over $8bn, whereas the amount that comes due for repayment in the next 12 months is over $20bn. Delta spent billions on share buybacks in the last two years. Assuming Delta continues to burn through its current cash at a fixed rate of $60m per day (in a bid to repay due loans) Delta will be completely bankrupt by the first week of September 2020.

Here are five reasons why I think Warren Buffett sold his Delta holdings on April 3rd 2020, a mere 36 days after buying almost a million shares in the same company:

1. No one is flying
It is clear that with planes grounded worldwide, there are very few current customers. The business cannot be profitable under such conditions and the share price may continue to drop for the foreseeable future.

2. Unsustainable costs
The longer the global health situation persists the more likely airlines are going to go bankrupt. They are burning through cash at a rapid rate. Some have furloughed employees. I talked before in a previous video about just some of the costs airlines must bear on a rolling basis. These are considerable and unyielding. Hundreds of airlines have gone bankrupt in the past due to the fragility of this sector.

3. Hidden or unidentifiable value
The billions spent on buybacks have cloaked the true value of this company from view while inflating shareholder returns. Delta has no money left as it's gone on buybacks to the neglect of positioning itself to weather this calamity.

What happens when value investing fails? Is value investing still as applicable as it was when Buffett got started?

Since he still owns significant numbers of the shares, Buffett may attempt to reassure shareholders that the sale was to dip below 10% so that way he doesn’t have to file with the SEC every time he buys or sells the shares. But for years Buffett has espoused the philosophy of only buying a company you would hold forever, and then just forgetting about its price while it gathers value. He bought nearly a million shares and sold 12.9 million shares of the same company 36 days later at a substantial loss. It’s unlike him to be fearful when everyone is fearful. He’s usually greedy then.

4. Stock buybacks banned under bailout terms

Unless they receive a bailout Delta Airlines will cease to exist very quickly. Some say there is reduced scope for the share price reinflating if buybacks are not allowed and nor are employee bonuses. Confidence will further be undermined.

5. Future tax rises hampering profitability

55% of airline operating expenses are taxes. How much more tax can they bear? Maybe governments will insist upon airlines and energy companies planting trees or forests to offset carbon.

SUMMARY OF BUFFETT'S RECENT STRATEGY

My personal perspective is that Warren Buffett bought Heinz at the top & is now selling Delta at the bottom. Buffett doesn’t do very well in a decline. He famously avoided investing in technology stocks. Nevertheless, he bought Big Blue, then sold Apple and Oracle, and bought IBM.

His buy & hold strategy fails because it ignores cycles. What goes up eventually comes down. Anyone who bought stocks in 1985 and just held as the Dow rose from 1,000 to 21,000 beat even Warren Buffett. He takes positions in companies and cannot get out later on when the business cycle moves down. He lost $4.3 billion in a single day. Does a quality fund manager do that?

And because he doesn’t know where to invest in this new landscape of capital preservation, Buffett was building up Berkshire's cash and passing up opportunity, causing many long-time devotees to abandon his company. He didn’t know where to put his money. All companies were doing stock buybacks so his value approach wasn’t effective for price discovery.

Obviously, his timing was not very good and his strategy of buy and hold does not fare very well in a decline. What do you think? Am I completely wrong? Buffett said If there’s no reason for customers to continue patronising a brand, it’s destined for failure. And some of the companies he has held fall into that category - Delta, Gillette, Kraft Heinz, Dexter Shoes.

The trend Buffett followed may be over. The question is, is the finite nature of Buffett’s wisdom, insight and competence, something that his acolytes will ever recognise?

My brief answer is buy Delta / any blue chip stock now, for a 1.5-3X profit by 2024. Stay away from Government bonds. The slingshot back upwards is coming.