Abu Dhabi, UAESaturday 30 May 2020

Coronavirus: Why is Warren Buffett so quiet?

Is the billionaire investor, known for his wisdom and activism during the Great Recession, not confident of a similar recovery this time around?

Known as the 'Oracle of Omaha', Warren Buffett's patient, measured approach to investment has made him one of the richest men in the world. Reuters
Known as the 'Oracle of Omaha', Warren Buffett's patient, measured approach to investment has made him one of the richest men in the world. Reuters

Warren Buffett is being very quiet right now, and this could be a bad omen for the world’s stock markets and wider economies.

Mr Buffett is chief executive of Berkshire Hathaway, which has big stakes in companies such as Amazon, Coca-Cola and Apple, and owns more than 90 businesses, including a railroad, an insurer, an energy provider and retailers.

He is a legendary investor, who is known as the "Oracle of Omaha". His patient, measured approach as well as brilliant track record in deal-making have made him one of the richest men in the world, and earned him a legion of followers. Tens of thousands of them gather every year for Berkshire’s annual shareholder meeting, which is more akin to a pop concert, sports event or religious revival than a typical corporate gathering.

But since the end of February, Mr Buffett has said very little (as of the time of writing). Amid what is foremost a public health crisis that is claiming lives daily, that would appear to be a wise and considered position for someone focused on financial markets. He is also in the highest-risk category personally from the coronavirus.

The 89-year-old, who had prostate cancer in 2012, is working from his home in Omaha, Nebraska – rather than his office only a few kilometres away – and seems to be following physical-distancing advice.

However, his low profile at the moment is in contrast to how he responded during the last great crisis more than a decade ago.

It could be argued that his leadership at the tail end of 2008, after the collapse of the Lehman Brothers investment bank, helped spur a swell of co-operative effort in the US to mitigate the sub-prime crisis’s impact and potential contagion across the world.

Washington, in particular, subsequently showed exemplary bipartisanship as President George W Bush’s term in office drew to a close and Barack Obama was poised to enter the White House. A month after Lehman’s failure, The New York Times published an op-ed by Mr Buffett.

A keen student of history, he wrote on October 16, 2008: “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president.”

The article was a rallying cry for those who believed in the American system of capitalism and the country’s ability to ride out any economic hardship. Mr Buffett stood firm and said he would not panic. In fact, he stated his intent to keep investing in US companies and assets. “Today my money and my mouth both say equities,” he wrote.

Mr Buffett then poured billions of dollars into stocks, such as those of investment bank Goldman Sachs and conglomerate General Electric, and these moves earned him billions more.

Last week, Berkshire Hathway said it had sold about 18 per cent of its stake in Delta Air Lines and four per cent of its holdings in Southwest Airlines. AP Photo
Last week, Berkshire Hathway said it had sold about 18 per cent of its stake in Delta Air Lines and four per cent of its holdings in Southwest Airlines. AP Photo

As of the end of last year, his portfolio was valued at $248 billion.

Last week, Berkshire said it had sold about 18 per cent of its stake in Delta Air Lines and four per cent of its holdings in Southwest Airlines. This is hardly surprising, given how hard the aviation sector has been hit by global measures to control the outbreak, such as the grounding of flights and shutting of borders. Any other buying or selling activity on Berkshire’s part is not yet public knowledge.

However, Mr Buffett does have about $100bn in cash that could be deployed immediately if he so wishes. That he is not being as vocal about what he is doing could well be his sense of dignity and empathy for the common man showing through; other well-known investors who are talking more could, perhaps, be accused of putting financial gains ahead of the human cost of the pandemic.

In a presidential election year, the passage of a $2 trillion stimulus bill in the US Congress could be the extent to which bipartisanship was achieved in Washington. Reuters
In a presidential election year, the passage of a $2 trillion stimulus bill in the US Congress could be the extent to which bipartisanship was achieved in Washington. Reuters

An investor friend of mine, who is a long-time observer of Mr Buffett, believes his last public comments, made in February, indicate an unprecedented level of bearishness on his part. Of course, Mr Buffett could be buying aggressively behind the scenes. But more likely – given an absence of any public deal-making on his part, despite the number of distressed sectors and companies that need a cash injection – there is little out there that he likes the look of at the moment.

There could be more pain to come, particularly as quick government action means banks are very liquid right now. The question is whether that support can continue as the crisis rolls on into the summer months, with the political landscape in the US so fractious.

The consequences of 2008 and 2009 set a course that has brought us to the extreme polarisation that we have witnessed in recent years.

There may already have been a complete erosion of common ground in Washington in a presidential election year. Any will to act together to keep supporting the economy may have been burned up last month with the passage of a $2 trillion stimulus bill in the US Congress.

Still, the current scenario has already matched the scale of the financial crash of 2008, with trillions of dollars in market capitalisation swept away. The sudden-stop and unique nature of the pandemic’s impact is already showing through in dire economic forecasts and employment data with millions more Americans now jobless.

A decade ago, the actions of governments and central banks to pump liquidity into the financial system actually precipitated a historic bull-run in equities. Yet, the situation still needed the likes of Mr Buffett in order to act to avert further damage. Perhaps this time around, Mr Buffett is not as confident of a repeat of that level of recovery.

Would he warn investors if he is feeling so pessimistic? He is oft-quoted for his sage advice to think long-term and to be wary of those companies that may not be all that they seem when times are good.

Where is his guidance now during these most troubled times? Should we take his silence as a message in itself?

Next month, Berkshire will hold its annual meeting virtually. Mr Buffett and his erstwhile partner Charlie Munger are likely to offer their views, which may not be quite as comforting as we might hope.

Mustafa Alrawi is an assistant editor-in-chief at The National

Updated: April 8, 2020 06:11 PM

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