Warren Buffet abruptly sold his airline stocks in 2020. During the Berkshire Hathaway annual meeting on May 2021, he explained why.
The reason is simpler than most belief. It is not that the he doesn’t believe the Airline business can’t flourish again. It has to do with the COVID struggle and the need for the Airlines to be saved during the pandemic.
Warren understood quickly that the business will be hurt badly. If he kept the stocks, the government probably will not be willing to help the Airlines and would ask them to go to Berkshire Hathaway, the wealthy shareholder for help. Warren understands that the airline will probably burn a lot of cash for a significant time before the recovery takes place. The only way to protect his company Berkshire Hathaway was to sell the stocks. One of Buffet’s investment principles is to put money only in companies, that can produce cash even in bad times. This shows that he is always awake. He would not hesitate to sell a company if the business outlook changes to negative.
The Airline companies stocks are partly back again, but the amount of debt required to save them is high. Their outlook to produce surplus of cash is dire. Despite the stock recovery, we can’t recognize them as long term opportunity at the moment. We do believe people will start travel again, once the pandemic is over, however at the current shares price (May 2021), we can’t see the Airlines as legit long-term investment.
As of May 2021, we do not monitor any Airline stock, and we do not consider buying any in short-term. For more information, check in our Mobile App. We regularly publish our stock positions, as well as our short term CFD trades. In case our view on Airlines stocks change, you will get a notification in the app. Further we will publish the stocks we monitor under the Pending Positions.