Warren Buffett Swooped In During 2008 But What Is His Powerplay For 2020?
The Sage of Omaha is still waiting in the wings despite the recent market downturn
Billionaire investor Warren Buffett emerged as a key player who helped restore confidence in the markets during the 2008 financial crisis, but he's remained relatively quiet during the 2020 downturn and it’s leaving many wondering about his next investment move.
During the 2008 financial crisis, Buffett, who has a net worth of $73.4 billion, played a hero: He calmed plunging markets and signaled to investors that it was safe to buy again all while making a handsome profit.
Now, in the midst of the coronavirus recession, when markets have dropped 15% since the start of the year, the Oracle of Omaha is laying low and leaving many speculating whether he's quietly buying up stocks.
Here’s a look at Berkshire’s playbook in 2008 and the opportunities it might be considering right now.
Buffett Then: 2008 Financial Crisis
- As big banks faced potential failure and confidence in the system began to falter, the Oracle of Omaha pumped $5 billion into Goldman Sachs, $3 billion into General Electric and later invested $5 billion to help shore up Bank of America; in 2009, he bought Burlington Northern Santa Fe Railway for around $26 billion.
- In October 2008, Buffett penned an op-ed in the New York Times under the headline, “Buy American. I Am,” explaining why he was buying U.S. stocks and why others should do the same.
- Berkshire’s total crisis-era investments, which totaled more than $25 billion, earned $10 billion in profit within the first five years of those deals.
- During a crisis, “The factories don’t disappear, the farmland doesn’t disappear, the skills of the people don’t disappear,” Buffett said, explaining his 2008 investments.
Buffett Now: 2020 Coronavirus Sell-Off
- 2020 is not 2008 in that the financial system isn’t on the brink of failure, which could explain some of Berkshire’s patience; Buffett recently noted that the coronavirus is “scary stuff” for businesses and investors but that he has “not changed” his long-term optimism on stocks.
- Global turmoil creates opportunities for savvy dealmakers with capital on hand notes Cornelia Andersson, head of M&A and Capital Raising for Refinitiv; M&A activity in 2020—like in 2008—could be dominated by rescue deals and restructurings.
- Private-equity firms, hedge funds and other investors flush with cash—including Berkshire Hathaway, which entered 2020 with about $128 billion—are reportedly circling companies in the travel, lodging and entertainment sectors that have been hard-hit by the economic shutdown, sources recently told the Wall Street Journal.
- Airlines, hotels, casinos and cinemas are just some of the industries facing harsh financial realities during the economic shutdown and they could be ripe targets for Berkshire. Requests for a comment from Berkshire have not yet been returned.
- Cruise operators including Carnival, Royal Carribean and Norwegian, whose shares are down at least 70% this year, might welcome Buffett’s cash since offshore tax registrations means they’re ineligible for federal aid.
Berkshire’s Remaining ‘Fairly Conservative’ For Now
- In the first quarter, Berkshire sold $314 million worth of Delta stock, $74 million worth of Southwest Airlines stock and $31 million in Bank of New York Mellon shares; it has yet to report the full extent of buying and selling activity for the quarter.
- Berkshire, which has seen its own shares fall 18% this year, has lost about $70 billion of value in its stock portfolio since mid-February.
- Charlie Munger, vice chairman at Berkshire Hathaway, told the Wall Street Journal recently that the Oracle of Omaha is being “fairly conservative” with his investments in the current market: “Nobody in America’s ever seen anything else like this,” Munger said. “This thing is different. Everybody talks as if they know what’s going to happen, and nobody knows what’s going to happen.”
- Companies are not calling Berkshire for capital like they were in 2008: “The phone is not ringing off the hook,” Munger confirmed, adding that airlines are “all negotiating with the government, but they’re not calling Warren.”
Despite the uncertainty, Buffett’s longtime business partner left open the possibility of action: “That doesn’t mean we couldn’t do something pretty aggressive or seize some opportunity.”