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Margaret Moran
Margaret Moran
Articles (349) 

Warren Buffett's Portfolio Loses $80 Billion on Market Downturn

Update on the Oracle of Omaha's portfolio as US markets enter bear territory

It’s been a crazy few weeks for U.S. equity markets as the novel coronavirus (Covid-19) and other factors such as the oil price war weigh on markets. The Dow dropped over 3,000 points on March 16, marking its worst decline since 1987. Since the S&P 500 peaked on Feb. 19, U.S. markets have entered a decline into bear territory, with the benchmark dropping 29.53% to trade around 2,408.40 at market close on March 16.

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Not even Warren Buffett (Trades, Portfolio), one of the most famous investors of all time, has been immune to the downslide. According to GuruFocus calculations, Buffett’s equity portfolio has lost approximately $80.2 billion, or 32%, since U.S. markets began sliding into bear territory on Feb. 19. Year to date, the valuation of Buffett’s portfolio is down $71.3 billion, or 29%, compared to the S&P 500’s 26% loss.

Portfolio movers

Buffett’s top three holdings, Apple Inc. (NASDAQ:AAPL), Bank of America Corp. (NYSE:BAC) and Coca-Cola Co. (NYSE:KO), lost $19.95 billion (21%), $13.20 billion (39%) and $5.80 billion (21%), respectively.

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Bank of America in particular has been hit hard by the economic downturn, since banks must take on a lot of responsibility for easing monetary policy. On Sunday, the Federal Reserve announced that it was cutting rates to zero, marking the second coronavirus-related emergency rate cut. This means that going forward, banks are not likely to post earnings growth for the duration of the bear market.

In terms of the price of each share, the Buffett holdings that have lost the most are Occidental Petroleum Corp. (NYSE:OXY), RH (NYSE:RH) and United Airlines Holdings Inc. (NASDAQ:UAL), which are down 70% ($577 million), 57% ($265 million) and 55% ($964 million), respectively.

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Only one of Buffett’s holdings, The Kroger Co. (NYSE:KR), defied the general market trend, gaining 9% for a $29 million increase in value for the equity portfolio. Both consumers and investors have been rushing to Kroger and other grocery stores to fill their pantries as panic over Covid-19 sets in, meaning that the owners of grocery store stocks have seen a surprise boost to these positions.

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Sticking to value principles

Buffett has not been among panic-sellers in the past, and he isn’t joining them this time around either. In fact, the guru's success has come largely from buying when markets are down. “It is scary stuff,” he said in an interview with CNBC on the topic, “I don’t think it should affect what you do in stocks.”

One of the most-quoted Buffett phrases is, "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

According to GuruFocus Real-Time Picks, a Premium feature, Buffett bought 976,507 more shares of Delta Air Lines (NYSE:DAL) on Feb. 27, increasing his stake by 1.38% to a total of 71,886,963 shares. The stock was trading around $46.40 at the time.

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As an airline stock, it has been one of the stocks hit the hardest by the market downturn, despite its long-term value. Since Feb. 19, Delta has declined 38%, which translated to a $1.60 billion loss in the value of Buffett’s investment in the company.

The new coronavirus will not keep people from travelling forever. Thus, for value investors, now is the perfect opportunity to increase holdings in companies that have high intrinsic value and are able to financially survive a temporary dive in business.

Accounting acrobatics

Due to this dramatic move in the stock market, Buffett’s Berkshire Hathaway (BRK.A) (BRK.B) will likely post equally dramatic earnings results for the first quarter of 2019. A change in GAAP accounting principles means that companies must now include unrealized gains and losses from their stock holdings in their earnings, meaning that the conglomerate’s earnings now partially reflect the stock market.

Below is an excerpt from Buffett’s 2019 letter to Berkshire shareholders:

“Berkshire earned $81.4 billion in 2019 according to generally accepted accounting principles (commonly called 'GAAP'). The components of that figure are $24 billion of operating earnings, $3.7 billion of realized capital gains and a $53.7 billion gain from an increase in the amount of net unrealized capital gains that exist in the stocks we hold. Each of those components of earnings is stated on an after-tax basis.

That $53.7 billion gain requires comment. It resulted from a new GAAP rule, imposed in 2018, that requires a company holding equity securities to include in earnings the net change in the unrealized gains and losses of those securities. As we stated in last year’s letter, neither Charlie Munger (Trades, Portfolio), my partner in managing Berkshire, nor I agree with that rule…

Now, Berkshire must enshrine in each quarter’s bottom line – a key item of news for many investors, analysts and commentators – every up and down movement of the stocks it owns, however capricious those fluctuations may be.

Berkshire’s 2018 and 2019 years glaringly illustrate the argument we have with the new rule. In 2018, a down year for the stock market, our net unrealized gains decreased by $20.6 billion, and we therefore reported GAAP earnings of only $4 billion. In 2019, rising stock prices increased net unrealized gains by the aforementioned $53.7 billion, pushing GAAP earnings to the $81.4 billion reported at the beginning of this letter. Those market gyrations led to a crazy 1,900% increase in GAAP earnings!

Meanwhile, in what we might call the real world, as opposed to accounting-land, Berkshire’s equity holdings averaged about $200 billion during the two years, and the intrinsic value of the stocks we own grew steadily and substantially throughout the period.”

Disclosure: Calculations are approximations based only on equity holdings as of the latest 13-F filing on Dec. 31, 2019 and do not include buys or sells after that date. Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

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Rating: 4.9/5 (7 votes)

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Comments

Rodney92
Rodney92 premium member - 8 months ago

...on paper that is..

After the panic, he'll make much times his money over the long term :-)

raj123456789
Raj123456789 - 8 months ago    Report SPAM

let us worry about our portfolio. He is perfectly capable of handling his.

Please leave your comment:



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