WWWD? What Will Warren Do? Everyone knows legendary investor Warren Buffett of Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) stock never lets a crisis go to waste. No one since J.P. Morgan has taken advantage of more crises than the 89-year-old Sage of Omaha.
We know he’s been getting ready. Berkshire Hathaway held $128 billion of cash at the end of 2019 . Most was locked in U.S. government bills and notes.
With new bills now earning less than 1%, and 10% of the workforce suddenly unemployed, this would seem to be a perfect opportunity.
Nothing So Far for BRK.B Stock
The only public move so far has been to raise even more cash. Specifically, Buffett has borrowed yen and euros. Because government paper there carries a negative interest rate, he can literally raise cash for nothing.
Berkshire’s 13F for the last quarter of 2019 shows it buying shares in Kroger (NYSE:KR) and Biogen (NASDAQ:BIIB). These companies are doing well. But Berkshire also bought shares in RH (NYSE:RH), the merchants formerly known as Restoration Hardware; General Motors (NYSE:GM); and Occidental Petroleum (NYSE:OXY), which have been hammered. To this you can also add losses in portfolio stocks, like Apple (NASDAQ:AAPL), American Airlines (NYSE:AAL), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC) and American Express (NYSE:AXP). Berkshire also owns a lot of Amazon.Com (NASDAQ:AMZN).
There are rumors of Buffett circling all the hardest-hit sectors — the airlines, the hotels, the casinos. These businesses, for now, are virtually out of business. But he hasn’t yet struck.
Instead he’s relaxing at his Omaha home, drinking Coca-Cola (NYSE:KO), which is down 20% this year. He is doing good works, like helping Goldman Sachs (NYSE:GS) get needed masks to Mt. Sinai Hospital in New York.
One reason Buffett may continue to hold cash is that Berkshire Hathaway is mostly an insurance company.
As its recent annual report shows Berkshire owns GEICO, as well as some of the biggest insurance and re-insurance operations in the world.
It also owns utilities, railroads, and several industrial companies hit hard by the virus. Some of its businesses, like McLane Co., which distributes groceries, are essential. Others like Benjamin Moore and Shaw Industries, which make paint and carpets, aren’t. Taken together it’s a rough collection for these tough times. Berkshire stock is down by one-quarter for the year. It may need cash to keep its own units afloat.
We Need Warren
Like many companies, Berkshire-Hathaway had to cancel its annual meeting. But the world is waiting to hear from Buffett anyway. Mostly it’s waiting to see him pull the trigger on a deal.
Instead, he waits for the panic to hit a peak, then takes premium assets at giveaway prices. That’s what he did in the Great Recession. He advised bailing out banks and later got about 10% of Bank of America at a fabulous discount.
That’s what may be expected this time, a swoop into companies that might otherwise go out of business. Those deals, when they come, will mark the climax of the present bear market.
The Bottom Line
Warren Buffett turns 90 in August. His long-time business partner, Charlie Munger, is even older. His reported successors, insurance executive Ajit Jain and energy executive Greg Abel, are not investors.
Ted Wechsler has the title of investment manager for Berkshire. Another potential CEO is Todd Combs, who now runs GEICO. Neither has a high public profile.
While waiting to see how Buffett saves us this time, ask who will save us next time?
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in WFC, AAPL and AMZN.