[Person人] Even the 'Wise Man of Omaha' Couldn't Beat the Virus

[Image source=EPA Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Even billionaire investor Warren Buffett, known as the "Sage of Omaha," could not escape the economic crisis caused by the novel coronavirus infection (COVID-19). The unpredictable attack of the virus changed even his investment principle of long-term investing in value stocks.

On the 2nd (local time), Buffett revealed at the Berkshire Hathaway virtual shareholders' meeting that he had sold all the airline stocks he held, surprising not only shareholders but also stock investors. His remark that "demand for the airline industry may not return to normal for the next 2 to 3 years" served as a sufficient warning to investors who had become somewhat complacent after the rebound in April.

Buffett's warning was confirmed in the stock market. On the 4th, Delta Air Lines' stock price fell 6.4% on the New York Stock Exchange, followed by a 3.8% plunge on the 5th, moving contrary to the bullish market. Airlines removed from Buffett's portfolio, such as United and American Airlines, also could not avoid the downward pressure on their stock prices. The stock price of Boeing, a leading American aircraft manufacturer, also showed weakness, cutting into the rise of the Dow Jones Industrial Average. On the 4th, aircraft engine manufacturer GE announced a plan to cut 13,000 jobs.

This decision by Buffett is significant in that he abandoned his long-held investment adage. Early in the COVID-19 crisis, he did not lose faith in airline stocks. Berkshire Hathaway, his company, bought additional Delta Air Lines shares at the end of February when the airline damage from COVID-19 was intensifying, citing value investing. Buffett declared in March that he would not sell airline stocks, but ultimately chose to cut losses to prevent further damage. He admitted about his choice, "I think I made a wrong value judgment."

It is rare to find an example of Buffett changing his mind so abruptly since he started investing. He has grown his assets through stock investments while overcoming crises such as the oil shock, U.S. savings and loan crisis, subprime mortgage crisis, and global financial crisis. However, even for the "Sage," the virus attack represents an unexpected "unknown world."

His mention that he did not buy any stocks during the sharp market decline also draws attention. Despite holding massive cash reserves, he said there were no stocks worth buying. Even as the market attempted a rebound, the investment master did not move but only watched. There was no chase buying to recover losses.

Regarding this, Greg Warren, an investment strategist at fund rating firm Morningstar, said, "Such a case is rare in Buffett's history," and assessed that he has changed. It is interpreted that he prepared for the crisis like Berkshire Hathaway's core insurance business. Jim Cramer, a famous host on CNBC, said, "Buffett's remarks were enough to wake up index fund investors."

COVID-19 completely changed Berkshire Hathaway's shareholders' meeting, once called the "Woodstock of capitalism." The company's annual shareholders' meeting held in early May is a place where investors from around the world flock to hear Buffett's investment adages. About 40,000 shareholders gather from the U.S. and all over the world. When the meeting is held, the Midwestern rural city of Omaha turns into a festival for three days. The competition to sit closer and listen to Buffett's remarks is fierce.

Buffett's change of heart may alter the scenery of Omaha. The Wall Street Journal (WSJ) reported that many things changed as this year's meeting was held online. Citing local Omaha media, WSJ estimated that the economic damage to Omaha from the cancellation of the offline shareholders' meeting could reach $21.3 million.

It is hard to be optimistic that next year's meeting will be held normally. If life does not return to normal after the COVID-19 crisis, we may have to meet Buffett virtually again next year. Besides the large-scale losses and the reversal of his investment philosophy, this meeting could mark a significant turning point for Buffett and Berkshire Hathaway.

However, one thing that has not changed in Buffett's philosophy is his effort to address inequality in capitalism, including his usual advocacy for higher taxes on the wealthy. At this meeting, he also presented a vision for what America should aim for after COVID-19.

American comedian Bill Murray asked Buffett, "We owe a great debt to medical staff, supermarket workers, delivery drivers, and others fighting against COVID-19. How should we take care of those who have joined the war against the virus?" Buffett replied, "They work tirelessly, but we don't even know their names. Once the crisis is overcome, we need to find ways to help them. They contribute more than ordinary people, the lucky, or those who know how to manage bonds and such."

This content was produced with the assistance of AI translation services.