Berkshire Annual Meeting: Buffett Didn't Buy the Dip and That Has ZeroHedge Worried (BRK)

And with good reason.
I've mentioned how fast the old boy can move when he spots an opportunity.
In September 2008, two days after the Lehman collapse, his then heir apparent David Sokol pitched Mr. B. on buying Constellation Energy. Warren looked at it for an hour, sent Sokol to Baltimore to pitch the Constellation board who liked Warren's idea and signed on.

The stock had traded as low as $13 and change—a price it had not seen in 25 years, and it traded there for all of about 90 minutes before news of the deal at $26.50 was announced.
ya snooze ya lose.
Constellation subsequently backed out of the deal but the $1.2 billion break-up fee was pretty good pay for Warren's hour of analysis.

But, contrary to some speculation going into today's meeting and earnings release, he's not buying now.

From ZeroHedge: 

Brace For A Monday Massacre: Buffett Liquidates All Airline Holdings As Berkshire Sees Another Leg Lower

Well, it's official: there won't be any "Buy American" op-eds by the Oracle of Omaha this time around. In fact, if anything, they will be titled simply "Sell."

Warren Buffett, who turns 90 in 4 months, had an unpleasant surprise for the permabullish Berkshire faithful during their annual pilgrimage to Omaha live-stream of Berkshire's annual meeting: one month after Berkshire surprised investors by selling parts of its Delta and Southwest Airlines stakes - both of which had previously been above a 10% ownership level and speculation was rife that Berkshire could purchase an airline outright in the near future - the Oracle of Omaha said that, 4 years after Berkshire took major stakes in the four largest US airlines, he had liquidated the sold the entirety of its equity position in the U.S. airline industry which included $6.5 billion worth of stock in United, American, Southwest and Delta Airlines.

Assuring that Monday will be a bloodbath for Trannies (that would be the transportation stocks you perverts), Buffett justified his decision as follows: "The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way,” he said. “I don’t know if Americans have now changed their habits or will change their habits because of the extended period."

But "I think there are certain industries, and unfortunately, I think that the airline industry, among others, that are really hurt by a forced shutdown by events that are far beyond our control."

"When we bought [airlines], we were getting an attractive amount for our money when investing across the airlines,” he said. “It turned out I was wrong about that business because of something that was not in any way the fault of four excellent CEOs. Believe me. No joy of being a CEO of an airline."
"“I don’t know that 3-4 years from now people will fly as many passenger miles as they did last year .... you’ve got too many planes."

Realizing that he won't be alive by the time a turnaround eventually happens, he clarified that he made the decision and that he lost money on his investments. “That was my mistake.”
Asked by CNBC’s Becky Quick to clarify if Berkshire had sold all of its airline holdings, Buffett answered "yes" and explained: “When we sell something, very often it’s going to be our entire stake: We don’t trim positions. That’s just not the way we approach it any more than if we buy 100% of a business. We’re going to sell it down to 90% or 80%."

“The airline business -- and I may be wrong and I hope I’m wrong -- but I think it’s changed in a very major way,” Buffett said. “The future is much less clear to me.”

As Bloomberg reminds us, Buffett has had a complicated relationship with the airline industry over the years. After a troublesome investment in USAir, Buffett joked that he would call an 800 number to declare he was an “air-o-holic” if he ever got the urge to invest in airlines again. Then in 2016, Berkshire dove into the industry again, amassing stakes in the four largest airlines. His renewed faith in the industry prompted speculation that he might one day own one of the carriers.

There is a more simplistic explanation of Buffett's style of investing at least in recent years: he will buy the stock of companies that engage in massive buybacks, such as Apple, even though his annual letter bashes companies that buybacks stocks, and he will dump all companies that halt buybacks, of which IBM is the most famous example. And since the quasi-bailed out airlines won't be repurchasing stock for years and years to come, it was only a matter of time before Buffett dumped them.

It also means that Buffett may soon liquidate many more sector holdings, starting with the banks which have also suspended buybacks for the near future and may be forced to extend said suspension indefinitely unless there is a V-shaped recovery in the global economy. The banks will then be followed by consumer discretionary, railroads, and many more. In fact, it would explain why unlike 2008, Buffett has not only not been buying any stocks despite major "bargains" but has actually been aggressive in liquidating his holdings, hardly an endorsement of the broader market....

....MUCH MORE

Recently on Buffett and the airlines:
March 13
"Warren Buffett: ‘I won’t be selling airline stocks’" 
Warren, noooo....
Here's what Mr. Buffet  told Fortune magazine: in 1999:
April 4 
Transportation: "Warren Buffett’s Berkshire Hathaway sells part of Delta, Southwest airline stakes" (DAL; LUV; BRK)

And going back to when he was amassing the stakes:
February 2017
Has Warren Buffett Lost His Mind? (asking for a friend) BRK
November 2016
What the Heck? "Warren Buffett is bullish on airline stocks" (BRK; AAL; DAL; UAL; LUV) 

***

And the reason we were so concerned about his interest in planes?
(I mean the choo-choo was one thing, you couldn't recreate Burlington Northern Santa Fe for three times what he paid but planes?)

Here's what Mr. Buffet  told Fortune magazine: in 1999

...Move on to failures of airlines. Here’s a list of 129 airlines that in the past 20 years filed for bankruptcy. Continental was smart enough to make that list twice. As of 1992, in fact--though the picture would have improved since then--the money that had been made since the dawn of aviation by all of this country’s airline companies was zero.

Absolutely zero.

I like to think that if I’d been at Kitty Hawk in 1903 when Orville Wright took off, I would have been farsighted enough, and public-spirited enough--I owed this to future capitalists--to shoot him down. I mean, Karl Marx couldn’t have done as much damage to capitalists as Orville did.

Mr. Buffett repeated the sentiment on the 2003 centenary of Orville's first flight.

Then in the 2007 Chairman's letter to the shareholders of Berkshire Hathaway he wrote (pp 8):

...Now let’s move to the gruesome. The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk , he would have done his successors a huge favor by shooting Orville down. The airline industry’s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it.

And I, to my shame, participated in this foolishness when I had Berkshire buy U.S. Air preferred stock in 1989. As the ink was drying on our check, the company went into a tailspin, and before long our preferred dividend was no longer being paid. But we then got very lucky. In one of the recurrent, but always misguided, bursts of optimism for airlines, we were actually able to sell our shares in 1998 for a hefty gain. In the decade following our sale, the company went bankrupt. Twice.

 To sum up, think of three types of “savings accounts.” The great one pays an extraordinarily high interest rate that will rise as the years pass. The good one pays an attractive rate of interest that will be earned also on deposits that are added. Finally, the gruesome account both pays an inadequate interest rate and requires you to keep adding money at those disappointing returns....